Opinion
02-0104-C-M/S)))
November 19, 2002
Daniel E Gustafson, Heins Mills Olson, Minneapolis, MN.
Irwin B Levin, Cohen Malad, Indianapolis, IN.
Cyrus Mehri, Mehri Skalet Pllc, Washington, DC.
Kenneth A Wexler, The Wexler Firm, Chicago, IL.
Anne N Deprez Barnes Thornburg, Indianapolis, IN.
Craig A Varga Varga Berger Ledskey Hayes Casey, Chicago, IL.
ORDER ON MOTION TO DISMISS
This matter is before the Court on defendant Union Acceptance Corporation's ("UAC") motion to dismiss with prejudice pursuant to Rule 12 of the Federal Rules of Civil Procedure. UAC argues that plaintiffs Lyndah Wise ("Wise") and Terrance Wilson ("Wilson"), as the Administrator of the Estate of Jack Wilson (collectively, "Plaintiffs"), have failed to state a claim under the Equal Credit Opportunity Act ("ECOA") because: (1) UAC is not a creditor under the ECOA; (2) no disparate impact claim exists under the ECOA; (3) Plaintiffs do not allege all the elements of a claim for disparate impact; and, (4) Plaintiffs fail to allege disparate treatment. UAC further argues that Plaintiffs fail to state claims for violations of 42 U.S.C. § 1981 and 1982. Additionally, UAC argues that Wilson's claims are barred by the applicable statutes of limitations. UAC's motion on each of these grounds is DENIED. Finally, UAC argues that Plaintiffs' complaint does not support a request for injunctive relief. UAC's motion to dismiss Plaintiffs' claim for injunctive relief is GRANTED.
I. BACKGROUND
The facts in the light most favorable to Plaintiffs are as follows. UAC engages in the business of financing the purchase of vehicles from over 5,600 manufacturer-franchised automobile dealership in several states. Complaint ¶ 11. Retail auto sellers arrange or originate credit, which UAC approves and for which UAC bears the risk. Id. ¶¶ 33-36. For each credit transaction, UAC sets a risk-related "Buy Rate" and a non-risk-related "Finance Charge Markup." Id. ¶ 36. UAC induces the retail seller to add the Finance Charge Markup to the retail buyer's total interest rate, and provides all the loan documentation. Id. ¶¶ 30, 36, 49. None of the loan documentation discloses to the retail buyer the Buy Rate or the Finance Charge Markup. Id. ¶ 40. UAC directs the retail seller to maintain the secret and instructs or permits retail sellers to imply that the interest rate offered is the Buy Rate, when it is not. Id.
Plaintiffs allege that UAC, through this credit pricing system, discriminates against African-Americans by unlawfully charging them higher finance charges than those charged to similarly-situated white consumers. Id. ¶ 2. UAC has been on notice of the discriminatory effects of pricing systems like the Finance Markup Charge. Id. ¶¶ 43-46. Plaintiffs allege that UAC fraudulently conceals its discriminatory pricing system, fails to monitor or prevent the discrimination, and fails to adequately train the retail seller to prevent discrimination. Id. ¶ 4.
Wise is an African-American who resides in Indiana. Id. ¶ 8. Wise received financing from UAC for the purchase of an automobile in Matteson, Illinois, in January, 2001. Id. ¶¶ 8, 50. Wise financed the vehicle at an annual percentage rate of eighteen percent (18%). Id. ¶ 52. Wise believes she was subject to UAC's Finance Charge Markup policy, which caused her to pay a disproportionately greater amount of non-risk-related credit charges than similarly-situated white consumers. Id. ¶ 53, 55. Wilson is the administrator of the estate of Jack Wilson (the "Decedent").
Id. ¶ 9. The Decedent was an African-American who received financing from UAC to purchase an automobile in Midlothian, Illinois, in May, 1998. Id.¶¶ 9, 56. The Decedent financed his vehicle at an annual percentage rate of sixteen and one-half percent (16.5%). Id. ¶ 60. Wilson believes the Decedent was subject to UAC's Finance Charge Markup policy, which caused the Decedent to pay higher non-risk-related credit charges than white consumers. Id. ¶ 60-61.
Plaintiffs originally brought their action individually and on behalf of a proposed class of African-Americans who received financing from UAC pursuant to retail installment automobile contracts from December 1, 1993, to the present. Id. ¶ 12. This Court denied Plaintiffs' motion to certify the class on October 4, 2002. (Docket No. 43) Both Plaintiffs allege that UAC discriminated against them in violation of the ECOA, 42 U.S.C. § 1981 and 42 U.S.C. § 1982. Id.
¶¶ 66-78. Plaintiffs allege that due to UAC's own conduct, they could not, with the exercise of due diligence, discover UAC's discrimination, and that UAC's conduct toward the proposed class constitutes a continuing violation. Id. ¶ 62-63. Plaintiffs seek actual damages and injunctive relief.
II. RULE 12(b)(6) STANDARDS
Under Federal Rule of Civil Procedure 12(b)(6), a claim is subject to dismissal for "failure to state a claim upon which relief may be granted." United States v. Clark County, Ind. 113 F. Supp.2d 1286, 1290 (S.D.Ind. 2000). When considering a motion under this rule, the Court must examine the sufficiency of a plaintiff's complaint, not the merits of the lawsuit. Id. The Court shall accept as true all well-pleaded factual allegations and draw all reasonable inferences in favor of the plaintiff. Id. Dismissal under Rule 12(b)(6) is proper only if the plaintiff could prove no set of facts in support of his claims that would entitle him to relief. Chavez v. Illinois State Police, 251 F.3d 612, 648 (7th Cir. 2001) (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Veazey v. Communications Cable of Chi., Inc., 194 F.3d 850, 854 (7th Cir. 1999)). "`[I]f it is possible to hypothesize a set of facts, consistent with the complaint, that would entitle the plaintiff to relief, dismissal under Rule 12(b)(6) is inappropriate.'" Id. (quoting Veazey, 194 F.3d at 854). For the purposes of a motion to dismiss, a court may consider documents as part of the pleadings if they are referred to in the complaint and central to the plaintiff's claims. Wright v. Associated Ins. Cos., Inc., 29 F.3d 1244, 1248 (7th Cir. 1994).
III. DISCUSSION A. UAC AS A CREDITOR
The ECOA prohibits any creditor from discriminating against any applicant on the basis of race, color, religion, national origin, sex, marital status, or age. 15 U.S.C. § 1691(a). A creditor for the purposes of the ECOA is an entity that "regularly extends, renews or continues credit." Id. § 1691a(e). Creditor also includes an entity that "regularly participates in the decision of whether or not to extend credit. The term includes a creditor's assignee, transferee, or subrogee who so participates." 12 C.F.R. § 202.2(1) (2001). UAC claims that it is not a creditor because "[a] person is not a creditor regarding any violation of the act or this regulation committed by another creditor unless the person knew or had reasonable notice of the act, policy or practice that constituted the violation before becoming involved in the credit transaction." Id. UAC argues that any discriminatory effect the Finance Charge Markup policy had was caused by the retail seller and that because UAC had no notice of the discrimination, it cannot be held liable for the retail seller's acts. The Court concludes UAC is a creditor for two reasons.
First, and most directly, Plaintiffs plainly allege that UAC is a creditor as defined by the ECOA and the implementing regulations (known as "Regulation B"). Plaintiffs allege discrimination by UAC directly, by way of the Finance Charge Markup policy, without regard to any wrongdoing by the retail seller. The Official Staff Interpretations of the ECOA regulations make clear that an assignee or potential purchaser of a credit obligation is a creditor if that party "influences the credit decision by indicating whether or not it will purchase the obligation if the transaction is consummated." In this regard, Plaintiffs sufficiently plead that UAC works with the retail seller, sets the Buy Rate and Finance Charge Markup, provides the loan documentation, and induces the retail seller not to disclose the Finance Charge Markup to the consumer. Moreover, UAC explains in its brief in support of its motion to dismiss that it sets the parameters, or the minimum price, for what contracts it will purchase from a retail seller. Thus, Plaintiffs may maintain a claim against UAC directly as a creditor.
The Federal Reserve Board intended the Official Staff Interpretations to serve as a guide to compliance with the ECOA. See Dolores S. Smith, Revision of the Board's Equal Credit Regulation: An Overview, 71 Fed. Res. Bull. 913, 916-17 (Dec. 1985).
Second, Plaintiffs have alleged the requisite "knowledge or reasonable notice" to remove UAC from the exception for liability of an assignee. UAC argues that for an assignee to be liable under the ECOA, it must have notice of the discrimination. The Court must believe, however, that notice of the policy or practice that results in discrimination will be enough, especially where the allegation is of disparate impact. The exception is for an assignee who "knew or had reasonable notice of the act, policy or practice that constituted the violation." 12 C.F.R. § 202.2(1). Plaintiffs sufficiently allege that knowledge to withstand a motion to dismiss. Plaintiffs also sufficiently allege that UAC had knowledge of the Finance Charge Markup policy's discriminatory effect.
Regardless of the tenuousness of this allegation, for purposes of a motion to dismiss the Court will accept Plaintiffs' allegations as true. See United States v. Clark County, Ind., 113 F. Supp.2d 1286, 1290 (S.D.Ind. 2000).
It is not necessary for the Court to address UAC's argument that no agency relationship exists between it and the retail sellers. Plaintiffs' theory of liability does not hinge on the existence of an agency relationship.
B. DISPARATE IMPACT UNDER THE ECOA
Plaintiffs allege that UAC's Finance Charge Markup policy, while arguably facially neutral, has a disproportionately adverse effect on African-Americans as compared to whites. UAC contends that the ECOA only prohibits intentional discrimination, and that no private right of action exists under the ECOA for conduct that has a disparate impact.
Disparate impact analysis clearly is available to demonstrate discrimination under the ECOA. 12 C.F.R. § 202.6(a) n. 2 (2001). See also A.B. S. Auto Serv., Inc. v. South Shore Bank of Chi., 962 F. Supp. 1056, 1060 (N.D.Ill. 1997); Thomas v. First Fed. Sav. Bank of Ind., 653 F. Supp. 1330, 1341 (N.D.Ind. 1987); Gross v. United States Small Bus. Admin., 669 F. Supp. 50, 52 (N.D.N.Y. 1987); Cherry v. Amoco Oil Co., 490 F. Supp. 1026, 1029-30 (N.D.Ga. 1980). In its argument to the contrary, UAC notes the difference in plain language between those statutes that allow disparate impact claims and those that do not. Yet, what distinguishes the ECOA from statutes like Title VI of the Civil Rights Act and the ADEA is a clear Congressional intent to prohibit conduct that has the effect of discrimination. Regulation B states that "[t]he legislative history of the Act indicates that the Congress intended an `effects test' concept, as outlined in the employment field . . . to be applicable to a creditor's determination of creditworthiness." 12 C.F.R. § 202.6(a) n. 2. In its explanation of the categories of prohibited discrimination, Congress informed: "In determining the existence of discrimination on these grounds, . . . courts or agencies are free to look at the effects of a creditor's practices as well as the creditor's motives or conduct in individual transactions." Senate Comm. on Banking, Housing and Urban Affairs, Equal Credit Opportunity Act Amendments of 1976, S. Rep. No. 94-589, at 4 (1976), reprinted in 1976 U.S.C.C.A.N. 403, 406. See also 12 C.F.R. pt. 202, Supp. I at 202.6(a)(2) (2001). The cases UAC cites, including Washington v. Davis, 426 U.S. 229 (1976), and Alexander v. Sandoval, 532 U.S. 275 (2001), are inapposite to the issue of disparate impact under the ECOA because of Congress' clear intent for courts to apply and develop an effects test. See also Dolores S. Smith, Revision of the Board's Equal Credit Regulation: An Overview, 71 Fed. Res. Bull. 913, 923 (Dec. 1985) (explaining that the Federal Reserve Board has thus far left "the development of the effects test and its application to the courts").
UAC argues that, at a minimum, disparate impact analysis should be limited to the determination of "creditworthiness." The reference to creditworthiness in Regulation B does not preclude an effects test with regard to allegations of discrimination in setting credit terms under the ECOA. Indeed, the Official Staff Commentary to Regulation B also states that the broader "creditor practice" may be prohibited where discriminatory in effect and that Congress intended for the effects test to apply to the "credit area." 12 C.F.R. pt. 202, Supp. I at 202.6(a)(2). Further, nothing in the legislative history or the case law applying the ECOA supports UAC's narrow interpretation of the term "creditworthiness." For example, the Senate committee that recommended amending the ECOA in 1976 to include prohibitions against discrimination based on race, color, religion, or national origin explained "these characteristics are totally unrelated to creditworthiness and cannot be considered by any creditor." S. Rep. No. 94-589, at 4. It is unlikely that the committee intended that race is related to other credit determinations, or that race is a proper consideration in setting credit terms.
Other district courts have allowed similar claims for disparate impact under the ECOA to proceed, where the allegedly discriminatory practice is subjective finance charge markups like that UAC has implemented. See Osborne v. Bank of Am., Nat'l Ass'n, No. 3:02-0364, 2002 WL 31408899 (M.D.Tenn. Sept. 23, 2002) (unpublished opinon); Jones v. Ford Motor Credit Co., No. 00 CIV. 8330(LMM), 2002 WL 88431 (S.D.N.Y. Jan. 22, 2002) (unpublished opinion); Coleman v. General Motors Acceptance Corp., 196 F.R.D. 315 (M.D.Tenn. 2000) vacated and remanded on unrelated grounds, 296 F.3d 443 (6th Cir. 2002). This Court agrees with those decisions.
C. ELEMENTS OF A DISPARATE IMPACT CLAIM
To adequately plead a claim for disparate impact, a party must allege an identifiable policy or practice and a causal link between the specifically identified policy or practice and the disparate outcome. See Bennett v. Roberts, 295 F.3d 687, 698 (7th Cir. 2002); Vitug v. Multistate Tax Comm'n, 88 F.3d 506, 513 (7th Cir. 1996). Plaintiffs allege that UAC engages in an "identifiable credit pricing system," which involves setting an objectively-determined Buy Rate and subjectively determined Finance Charge Markup for its credit transactions. Plaintiffs allege the Finance Charge Markup policy causes a disparity between the credit terms of African-Americans and those of whites, and that Plaintiffs have suffered damages as a result. Whether the Finance Charge Markup policy truly was a "policy" and truly proximately caused damage to Plaintiffs are questions to be addressed at a later time. For now, it is sufficient that Plaintiffs have alleged the necessary elements of a disparate impact claim under the ECOA.
D. DISPARATE TREATMENT
A claim for disparate treatment requires that a plaintiff plead he was treated differently because of his race. See Bennett v. Schmidt, 153 F.3d 516, 518 (7th Cir. 1998). Intent may be generally alleged and need not be elaborated. Fed.R.Civ.P. 9(b); Bennett, 153 F.3d at 518. As the Seventh Circuit explained in an employment discrimination case, "`I was turned down for a job because of my race' is all a complaint has to say. Because success on a disparate-treatment approach . . . requires proof of intentional discrimination, a plaintiff might want to allege intent — although this is implied by a claim of racial `discrimination.'" Bennett, 153 F.3d at 518.
UAC argues that Plaintiffs fail to state any claim for disparate treatment under the ECOA because Plaintiffs have not asserted that UAC intentionally treated Plaintiffs differently than others because of their race. It seems Plaintiffs complain primarily of disparate impact, not disparate treatment. However, the Plaintiffs have made the basic allegation that UAC intentionally discriminated, and Plaintiffs are entitled to conduct discovery on this theory. The time for flushing out implausible, rather than impossible, claims is at summary judgment. See id, 153 F.3d at 518. UAC's motion to dismiss a claim for disparate treatment under the ECOA is DENIED.
E. SECTIONS 1981 AND 1982 OF THE CIVIL RIGHTS ACT
To prevail on a claim under 42 U.S.C. § 1981 or 1982, a plaintiff must demonstrate intentional discrimination. See General Bldg. Contractors Ass'n v. Pennsylvania, 458 U.S. 375, 388-89 (1982); Phillips v. Hunter Trails Cmty. Ass'n, 685 F.2d 184, 187 (7th Cir. 1982). As discussed above, Plaintiffs have alleged intentional discrimination. The extent of Plaintiffs' proof on those claims is not at issue. UAC's motion to dismiss Plaintiffs' claims under 42 U.S.C. § 1981 and 1982 is DENIED.
F. STATUTE OF LIMITATIONS
The statute of limitations for a violation of the ECOA is two years. 15 U.S.C. § 1691e(f). A claim for discrimination under 42 U.S.C. § 1981 and 1982 also is two years. See Jones v. Citibank, Fed. Sav. Bank, 844 F. Supp. 437, 439 (N.D.Ill. 1994) (applying Illinois' two-year statute of limitations for personal injury suits and Illinois Human Rights Act claims, respectively). UAC notes that the Decedent signed his retail installment contract with UAC sometime in 1998 and reasons that Wilson's claims are time-barred. In response, Plaintiffs argue that either the continuing violations doctrine or the federal discovery rule tolls the statutes of limitations for Wilson's claims.
The continuing violations doctrine applies when a plaintiff alleges a continuing practice of discrimination, each event of which is so closely related that it constitutes a continuing violation.
Selan v. Kiley, 969 F.2d 560, 565 (7th Cir. 1992). Plaintiffs allege the discriminatory act to be imposition of the Finance Charge Markup policy. For the Decedent, that policy was implemented the day he entered into the retail installment contract. While discriminatory acts against each of the putative class members may have been so closely related as to constitute a continuing violation to the putative class, this Court has denied Plaintiffs' request for class certification. (Docket No. 43) Thus, as to the Decedent, Plaintiffs allege only one violation and the continuing violations doctrine cannot apply.
However, Plaintiffs also allege that the Decedent could not have discovered UAC's discrimination because of conduct on the part of UAC. The federal discovery rule operates to toll the statute of limitations on a federal question until the plaintiff knows or has reason to know of the injury. See Sellars v. Perry, 80 F.3d 243, 245-46 (7th Cir. 1996); Jones, 844 F. Supp. at 440-41. Taking Plaintiffs' allegation as true for the purposes of a motion to dismiss, the discovery rule prevents the Court from dismissing Wilson's claims under the ECOA or sections 1981 and 1982.
As noted by UAC, the Supreme Court has ruled that a general discovery rule does not apply to claims under the Fair Credit Reporting Act. TRW, Inc. v. Andrews, 122 S.Ct. 441, 447- 48 (2001). Because the FCRA delineates a specific, limited discovery rule, it excludes application of a general discovery rule. See id. This reasoning does not apply to the ECOA.
UAC's motion to dismiss Wilson's claims as time-barred is DENIED.
G. INJUNCTIVE RELIEF
Because a threat of real or immediate harm to the putative class is no longer an issue, and because Plaintiffs have not alleged any threat of real or immediate harm to themselves individually, UAC's motion to dismiss Plaintiffs' request for injunctive relief is GRANTED.
IV. CONCLUSION
UAC's motion to dismiss Plaintiffs' claim for injunctive relief is GRANTED. For the reasons discussed herein, the remainder of UAC's motion to dismiss is DENIED.
IT IS SO ORDERED