Sixth Circuit Court of Appeals upholds $125,000 jury verdict in race-based MI unfair lending case

The Sixth Circuit Court of Appeals issued a decision in July upholding a $125,000 judgment in a fair lending case from Detroit involving Flagstar Bank and allegations of racial discrimination. The panel reversed a separate jury decision against Flagstar, ruling that the plaintiffs in that case had not filed their lawsuit in a timely
manner.

The Sixth Circuit panel’s decision leaves in place a $125,000 award for compensatory damages that a federal jury in Michigan gave to David and Stephanie Edwards, an African  American couple that received a mortgage with unfavorable terms from Flagstar. The court also awarded attorney’s fees to the Edwardses.

David and Stephanie Edwards sought help from the Fair Housing Center of Metropolitan Detroit after they received what they believed to be an unfavorable loan. During the trial, the Edwardses testified that they felt as though Flagstar treated them differently than other customers, because they are African American.

African American couple denied twice before being offered loan with higher rate and longer term

On March 11, 1994, the Edwardses applied for a 15-year mortgage from Flagstar at a fixed interest rate of 7.875 percent. Their application was denied on May 26, 1994. According to Flagstar, the Edwardses’ application was denied because they had insufficient funds to close the loan, inadequate collateral, and Flagstar did “not grant credit to any applicant on the terms and conditions [the Edwardses] requested.” The Edwardses asserted that these stated reasons were a pretext designed to mask the bank’s racially discriminatory actions.

In an attempt to answer Flagstar’s questions about their credit, the Edwardses met with a Flagstar loan officer on June 1, 1994. The Edwardses maintained that the credit
problems being raised by Flagstar and its loan officers were old and should not be considered in their application for a mortgage. Nevertheless, on September 16, 1994, Flagstar issued a second credit denial statement. The Edwardses asserted that the reasons given for this second denial were also pretextual.

After addressing additional questions about various credit issues, the Edwardses applied for a 30-year mortgage at a higher 9.5 percent interest rate. When this application was also denied, the Edwardses applied once again for a 30-year mortgage, but this time at a 10.875 percent interest rate. This final application with twice the original term and
three percent more interest than what the Edwardses had originally asked for was approved by Flagstar. The Edwardses asserted that, throughout the entire mortgage
application process, Flagstar employees treated them as “second class citizens” due to their race.

Bank argues it should have been able to remove only African American juror

After a trial, a federal jury ruled in the Edwardses’ favor. Flagstar appealed the decision to the Sixth Circuit, alleging that the district court erred by allowing the plaintiffs to present testing evidence, by keeping an African American juror on the jury after the defendants attempted to remove her, by refusing to allow the bank to present its Community Reinvestment Act (CRA) ratings reports as evidence, by refusing to allow the bank to produce four loan files of other African American customers, and by denying
the defendants’ motion for a new trial.

Writing for the panel, Judge Ronald Lee Gilman asserted that the district court had not erred in the areas raised by Flagstar. The testing evidence, which included reports that Flagstar loan officers attempted to racially steer testers and also made racially insensitive comments, had merit and was not prejudicial. The panel asserted that the court acted correctly in reinstating the only African American juror, and that the district court was right to reject the bank’s CRA ratings and the additional loan files. The order also noted that there was sufficient evidence for the jury to believe Flagstar had discriminated against the Edwardses, and therefore, there was no reason to order a new trial.

Stephen R. Tomkowiak, a Fair Housing Center cooperating attorney, represented the Edwardses throughout the case. Sixth Circuit Judges Gilman and Eugene E. Siler, Jr. sat on the panel hearing the case, along with John G. Heyburn II, Chief United States District Judge for the Western District of Kentucky, who was sitting on the panel by designation.