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HARGRAVES v. CAPITAL CITY MORTGAGE

September 29, 2000

CLYDE HARGRAVES, ET AL., PLAINTIFFS,
V.
CAPITAL CITY MORTGAGE CORP., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Joyce Hens Green, Judge.

          MEMORANDUM OPINION AND ORDER

Defendants Capital City Mortgage Corporation ("Capital City") and Thomas K. Nash ("Nash") have moved for judgment on the pleadings, or, in the alternative, for summary judgment. on ten of the eleven counts brought in the first amended complaint. In response. plaintiffs have filed an opposition, and pursuant to this Court's March 14, 2000 Order, the United States has filed a brief as amicus curiae, addressing defendants' motion. In addition, defendants have filed motions to sever the claims and hold separate trials, to transfer this case to the United States District Court for the District of Maryland, and to preclude one of the plaintiffs from offering evidence of emotional distress. The motion for summary judgment is denied in part and granted in part, and the other three motions are denied.

I. Factual background

The plaintiffs allege that the defendants have engaged in a pattern or practice of predatory and racially discriminatory lending in the Washington, D.C. metropolitan area. Capital City is a Maryland corporation with its principal place of business in the District of Columbia, which makes and services loans. Nash is Capital City's president, and, through Mortgage Banking Trust, wholly owns Capital City. Specifically, plaintiffs allege violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (c), (d), & § 1964(c) (2000), the Fair Housing Act ("FHA"), 42 U.S.C. § 3604 (a) & (b), 3605(a)-(b)(1) & (b)(2) (1994), the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691 (a) (1998), civil rights violations under 42 U.S.C. § 1981 & § 1982 (1994), unfair and deceptive lender practices, D.C. Code § 28-3312 (1996), fraud, and breach of contract.*fn1

The plaintiffs' claims are based on allegations of ongoing illegal and discriminatory activity, particularly with regard to four loans made by the defendants to the plaintiffs. Defendants' loan to the Greater Little Ark Baptist Church ("Greater Little Ark"), which was secured by the building where the church held services, was executed on June 9, 1990. Greater Little Ark was evicted in March, 1995. In addition to Greater Little Ark, the church's pastor Clyde Hargraves ("Hargraves"), and the financial secretary and member of its board of trustees, Erlinda Cooper ("Cooper"), are plaintiffs in this action (collectively referred to as "the Greater Little Ark plaintiffs"). In 1995, plaintiffs Nancy Hilliard and her daughter Angela Birth ("Birth") received a loan from the defendants to purchase a church, and pledged their home as collateral for the loan. Hilliard and Birth both entered bankruptcy, and are behind on their loan payments.*fn2 Walter Jamison ("Jamison") received a loan which was executed on or about April 17, 1991, secured by the building which housed his convenience store and two residential units. Sylvia Robinson ("Robinson") purchased residential property from the defendants. Settlement was on March 20, 1996. The eighth and final plaintiff is the Fair Housing Counsel of Greater Washington, Inc. ("FHC"). FHC alleges that the defendants' practices have caused FHC to devote its scarce resources to the investigation of defendants' lending and foreclosure activities, as well as to outreach, education, and enforcement efforts regarding the defendants' activities. Collectively, the plaintiffs allege that the defendants have engaged in "reverse redlining," targeting African-American communities with predatory lending practices. Individually, each plaintiff alleges injury from those practices.

II. Judgment on the Pleadings, or Motion for Summary Judgment

In support of their motion for summary judgment defendants have submitted a Statement of Material Facts As To Which There Is No Genuine Issue ("Defendants' Statement"). and plaintiffs have filed a Statement of Material Facts and Facts In Dispute ("Plaintiffs' Statement").*fn3 Because the defendants have relied on matters outside the pleadings, the motion shall be treated as a motion for summary judgement. See Fed. Rule Civ. P. 12(c). As such, defendants have the burden to establish that the "pleadings, depositions. answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact," and that they are entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c). Defendants will only be entitled to summary judgment "If the record, viewed in the light most favorable to the nonmoving party, reveals that there is no genuine issue as to any material fact." Aka v. Washington Hospital center, 156 F.3d 1284, 1288 (D.C. Cir. 1998).

A. Statute of Limitations

The defendants argue that, under the applicable statutes of limitations, all of the FHA and ECOA claims are barred, the section 1981 and section 1982 claims are barred as to all plaintiffs except Robinson, and Jamison and the Greater Little Ark plaintiffs' RICO claims are barred.

1. The RICO claims

The statute of limitations applicable to RICO claims is four years. See Agency Holding Corp. v. Malley-Duff & Assoc. Inc, 483 U.S. 143. (1987). The original complaint was filed on April 24, 1998, therefore Jamison and the Greater Little Ark plaintiffs' claims will be barred if they accrued prior to April 24, 1994. Defendants argue that a RICO claim accrues at "the earliest time at which plaintiff could have maintained an action on the merits," and cite Riddell v. Riddell Washington Corp., 866 F.2d 1480 (D.C. Cir. 1989), as support for that premise. Plaintiffs contend that the "discovery rule" applies, and thus their claim accrues when they knew, or should have known, of their injury.

The question of when a RICO claim accrues has not been definitively settled. The "last predicate act" rule was rejected in Klehr v. A.O. Smith Corp., 521 U.S. 179 (1997), and the "injury and pattern discovery rule" was rejected in Rotella v. Wood, 120 S.Ct. 1075 (2000). However, the latter case left open the question of whether a discovery rule, or a straight injury occurrence rule, applies to RICO claims. The District of Columbia Circuit similarly declined to resolve that question in Riddell. 866 F.2d at 1489-90. However, a number of circuits have applied a "discovery rule" to RICO claims, including the Fifth Circuit in the Rotella case, and the Court will assume for the purposes of this opinion that the discovery rule applies. See, e.g., Grimmett v. Brown, 75 F.3d 506 (9th Cir. 1996), cert. dismissed as improvidently granted, 519 U.S. 233 (1997); McCool v. Strata Oil Co., 972 F.2d 1452 (7th Cir. 1992); Rodriguez v. Banco Central Corp., 917 F.2d 664 (1St Cir. 1990); Bankers Trust Co. v. Rhoades, 859 F.2d 1096 (2d Cir. 1988); Pocahontas Supreme Coal Co. v. Bethlehem Steel Corp, 828 F.2d 211 (4th Cir. 1987).

Plaintiffs contend that the defendants fraudulently concealed material facts related to the wrongdoing. If plaintiffs can make a showing of fraudulent concealment, the cause of action will be deemed "not to have accrued during the period of concealment — unless the defendant shows that the plaintiff would have discovered the fraud with the exercise of due diligence." Sprint Communications Co., L.P. v. Federal Communications Comm'n, 76 F.3d 1221, 1226 (D.C. Cir. 1996). Whereas the plaintiffs' being on "inquiry notice" is enough to satisfy the discovery rule in normal cases, "something closer to actual notice" is required to set the statute of limitations in motion in a case involving fraudulent concealment. Id.

The Amended Complaint ("complaint") does contain an allegation that the defendants "concealed the pattern of racketeering," and the plaintiffs attached supporting declarations to their opposition to defendants' summary judgment motion. Hargraves and Cooper declared that by April 28, 1994, they remained unaware of the defendants' racketeering activities, and unaware that their injuries arose out of such activities. Jamison declared that he did not know that the defendants discriminated on the basis of race until May 1996, when a series of articles about the defendants was published in the Washington Post. Plaintiffs also cite to deposition testimony that the Greater Little Ark borrowers were unaware that their loan was interest only, and that the defendants failed to provide them with coupon books or any other breakdown of monthly charges. Rather than specifically stating acts of fraudulent concealment on the part of the defendants, these allegations go to the plaintiffs' knowledge or state of mind. A bare allegation of fraudulent concealment is not sufficient, and the evidence referenced by the plaintiffs does not suggest any particular efforts by the defendants to hide their alleged wrongdoing.

Even if plaintiffs were able to point to facts in dispute regarding the allegations of fraudulent concealment, Rotella makes clear that knowledge of the injury, rather than knowledge of the pattern of RICO activity, starts the clock running for statute of limitations purposes. For the most part, the supporting documentation cited by the plaintiffs does not suggest the plaintiffs were unaware of their injuries, but merely that they were unaware of the defendants' discrimination and racketeering. Awareness of the pattern of RICO activity is not necessary to start the statute of limitations period running. See Rotella, 120 S.Ct. at 1083. Jamison's loan settled in April 1991, and the Greater Little Ark loan settled in June 1990. Thus, long before April 24, 1994, both Jamison and the Greater Little Ark plaintiffs had repeatedly been billed, made payments, and been exposed to at least some of the consequences of the allegedly illegal and discriminatory loans. The plaintiffs have not proffered evidence genuinely disputing the fact that these plaintiffs were aware of their injuries before April 24, 1994. The defendants' motion for summary judgment with regards to Jamison and the Greater Little Ark plaintiffs' RICO claims is granted.*fn4

ii. The Remaining Causes of Action

Under the FHA a civil action must be filed "not later than 2 years after the occurrence or the termination of an alleged discriminatory housing practice." 42 U.S.C. § 3613 (a)(1)(A). Under the ECOA, suit must be brought within two years of "the date of the occurrence of the violation." 15 U.S.C. § 169 e(f). The parties agree that for sections 1981 and 1982, the Court must borrow the local statute of limitations for general personal injury actions which is, in the District of Columbia, three years. D.C. Code § 12-301(8) (1995). Defendants argue that the statute of limitations begins to run on the date of settlement. All of the loans were made before April 1996, and only Robinson's loan was made after April 1995. Defendants propose that this bars all claims under these statutes of limitations, except Robinson's section 1981 and 1982 claims.*fn5

Plaintiffs propose that the Court apply a "continuing violation" theory. The leading example of that theory is Havens Really Corp. v. Coleman, 455 U.S. 363 (1982). In the context of allegations under the FHA, the Supreme Court held that continuing violations "should be treated differently than one discrete act of discrimination," so that the complaint is timely where the "last asserted occurrence" of the pattern of violation falls within the statute of limitations. Id. at 380-81.

The continuing violation theory has been applied in the civil rights and discrimination contexts to a number of federal statutes. See Havens, 455 U.S. 363 (FHA); Thompson v. Sawyer, 678 F.2d 257 (D.C. Cir. 1982) (Equal Pay Act); Hull v. Cuyahoga Valley Joint Vocational School Dist. Bd. of Ed., 926 F.2d 505 (6th Cir. 1991) (section 1983); Village of Bellwood v. Dwivedi, 895 F.2d 1521 (7th Cir. 1990) (section 1982 and Title VIII housing discrimination); Carter v. District of Columbia, 14 F. Supp.2d 97 (D.D.C. 1998) (section 1981 and Title VII); see also Lewis v. Glickman, 104 F. Supp.2d 1311 (D.Kan. 2000) (considering continuing violation theory in context of ECOA claim, but finding that no discriminatory practice occurred within the necessary time frame). The theory applies where defendants commit "repeated, but distinct, discriminatory acts, some inside and some outside the limitations period." See Guerra Cuomo, 176 F.3d 547, 551 (D.C. Cir. 1999). The continuing violations theory should be applied where the type of violation is "one that could not reasonably have been expected to be made the subject of a lawsuit when it first occurred because its character as a violation did not become clear until it was repeated during the limitations period." Taylor v. FDIC, 132 F.3d 753, 765 (D.C. Cir. 1997) (quoting Dasgupta v. University of Wisconsin Bd. of Regents, 121 F.3d 1138, 1139 (7th Cir. 1997)).

The defendants argue that the continuing violation theory does not apply here because "there are no common connections between the plaintiffs and there was no continuing effect of the denial of loans from one plaintiff to another." Motion for Summary Judgment at 18. The complaint alleges a systemic practice of discrimination by the defendants. In the exhibits attached to their Statement of Material Facts and Facts in Dispute ("Plaintiffs' Statement"), the plaintiffs provide materials illustrating the racial makeup of the areas in which the defendants' loans are concentrated, and the racially divided "dual housing market" that has existed in the District, as well as the "predatory" nature of the defendants' lending practices. They allege that many of the defendants' lending practices, including exorbitantly high interest rates, the failure to engage in realistic assessments regarding whether the borrower is likely to be financially able to repay the loan, "churning" loans through multiple foreclosures on the same property, higher than average rates of foreclosure, and fraudulent fees and penalties on the loans they service, constitute "predatory" lending. The plaintiffs provide examples of those behaviors in the context of their own loans. These allegations are sufficient to demonstrate a pattern of repeated violations.

Defendants raise another argument that, except for Robinson's section 1981 and 1983 claims, none of the alleged discriminatory acts fall within the limitations periods. The defendants argue that the "continuing effects of past discriminatory acts" are not separate, illegal, acts, and do not enable plaintiffs to avoid statute of limitations problems. See Guerra, 176 F.3d at 551. Defendants contend that all actions subsequent to settlement of the loans were merely "continuing effects." While the defendants are correct that the lingering effects of past discrimination would be insufficient under the continuing violation doctrine, the plaintiffs argue that the defendants committed violations subsequent to the issuance of the loans. First, they submit that the loans themselves were discriminatory, and actions to enforce the terms of those loans are violations in themselves. If the loan agreements were legal, and only the manner in which the defendants targeted the plaintiffs was discriminatory, the defendants' argument would be successful. See, e.g., Dasgupta, 121 F.3d 1140 (policy of proportioning raises to existing salary was not in itself discriminatory, even if initial rate of pay decision may have been, therefore ongoing disparity of pay constituted effects of past violations, rather than new violations); Dixon v. Anderson, 928 F.2d 212 (6th Cir. 1991) (despite discrimination in initial denial of membership in a retirement system, ongoing failure to distribute benefits to plaintiffs was not discriminatory because, once the decision to exclude had been made, the retirement system operated neutrally). Here, plaintiffs allege that not only the decision to extend the loans, but the loans themselves, were predatory and illegal. As example, it is contested whether the allegedly exorbitant interest rates were discriminatory in themselves, resulting in a violation each time the defendants actively enforced them through collection letters or foreclosure proceedings. See Contract Buyers League v. F&F Investment, 300 F. Supp. 210, 221 (N.D. Ill. 1969) (as long as illegal contracts were in operation, the violation was ongoing), aff'd by Baker v. F&F Inc., 420 F.2d 1191 (7th Cir. 1970); see also Eichman v. Fotomat Corp., 880 F.2d 1149, 160 (9th Cir. 1989) (active enforcement of an illegal contract could re-start statute of limitations); Casa Marie, Inc. v. Superior Court of Puerto Rico for the District of Arecibo, 752 F. Supp. 1152, 1161 (D. Puerto Rico 1990) (each time defendants went to court in an attempt to remove plaintiffs through enforcement of a restrictive covenant, as well as construction code violations, defendants violated plaintiffs' rights), vacated on other grounds, 988 F.2d 252 (1st Cir. 1993). The character of the defendants' activities will need to be examined at trial, before a determination can be made as to whether those activities were independently discriminatory.

Plaintiffs also submit that in addition to enforcing the stated loan terms, the defendants committed specific violations within the statute of limitations period beginning April 24, 1996. For example, they allege that throughout the term of the loan, and specifically in March and April 1997, the defendants charged Jamison fees that were not authorized under the terms of his note, see Plaintiffs' Statement ¶ 21 & Plaintiffs' Ex. 34, that through May 1996 and beyond defendants charged Hilliard, Birth, and Jamison interest on unpaid interest amounts although such interest was not provided for in their notes, see Opposition at 53 & Plaintiffs' Ex. 57-58, and that, after March 1996, defendants charged Robinson interest on amounts of money that had yet to be advanced, see Plaintiffs' Statement ¶ 51, Robinson Depo. at 135. The plaintiffs have established there are genuinely disputed facts regarding whether or not violations occurred during the statute of limitations period. Under the continuing violations theory their claims are permitted.

B. Reverse Redlining and Predatory Lending

Defendants argue that reverse redlining does not constitute a violation of the FHA or sections 1981 or 1982, that "predatory" loans are not actionable,*fn6 that they did not target their loans toward African-American neighborhoods and that ...


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