An Issue of Discrimination

May a co-op require a prospective purchaser to obtain references from current shareholders? That was the issue in Fair Housing Justice Center v. Silver Beach Gardens.

Plaintiff Fair Housing Justice Center (FHJC) sued the Silver Beach Gardens Corporation, Edgewater Park Owners Cooperative, and Amelia Lewis for discrimination. The FHJC was a not-for-profit organization dedicated to eliminating discrimination. Defendants Silver Beach and Edgewater were co-op corporations; defendant Lewis was a real estate agent. The complaint alleged that they had violated federal, state, and local fair housing laws by, among other things, selectively enforcing a requirement that prospective purchasers obtain three references from existing co-op shareholders. The co-ops moved to dismiss the complaint.

The FHJC tested compliance with fair housing laws by, among other things, hiring “testers” of different races to pose as potential renters or buyers and then sending them to the housing entity to inquire about renting or buying a home. Here, FHJC sent two groups of testers, one white and one black, to meet with Lewis, a white real estate broker with multiple listings in the co-ops. Lewis worked as a real estate agent for 45 years and previously lived in each of the co-ops.

On September 18, 2009, one of the white testers posed as a married woman with no children and met with Lewis. Lewis informed the white tester that she would arrange for the tester to see five houses in Edgewater and one in Silver Beach, all at prices below $300,000. Lewis told the white tester that the co-ops were “very nice…mostly ethnic Irish, German, Italian…there’s some Puerto Rican, not many,” and that “they would love you, I can tell.” The white tester informed Lewis that she did not know anyone in the co-ops and she asked about the policy that required her to obtain references from three current residents.

Lewis allegedly downplayed the importance of the policies, saying she would help the tester/purchaser satisfy the requirements, asserting that the white tester “did not need to know anyone,” that Lewis was “sure” she could get references for the tester, that the seller was “allowed to recommend people to provide references,” that Lewis would “ask the owner of the house to please help you with the references,” that “the co-ops know this is what happens” and that the seller of a house “did not have to personally meet the testers in order to be one of their references.”

Two weeks later, the white tester returned with a second white tester posing as her husband. After seeing a house in Silver Beach, the white testers met a man named George who told them that he had lived in Silver Beach for 18 years and that Silver Beach was a “nice place to live and that the owners ‘like to keep to ourselves about it.’”

Three days later, on October 5, 2009, the white testers met with two individuals at the business offices of Silver Beach. When the white testers informed the Silver Beach employees that they did not know anyone in Silver Beach, that Lewis had offered to help with the references and that the seller could be one of the references, the employees responded, “Don’t tell me that … I don’t want to know that,” and “Don’t tell me … you have to have three references; that is our rule.”

According to the complaint, when one of the white testers pressed a Silver Beach employee about the issue and told her that Lewis had told them it should not be a problem that they did not know anyone, the Silver Beach employee “indicated that it was up to Lewis if she wanted to do anything,” and stated: “We shouldn’t…you need the three letters, but what I don’t know, can’t hurt me.”

On September 29, 2009, the black testers met with Lewis after inquiring about a home in Silver Beach priced at or below $300,000. FHJC alleged that, prior to meeting the testers, Lewis had told them that she had one home available for $250,000 in Silver Beach. Upon meeting the black testers, Lewis informed them that they had “to know three people who live there” and after the testers told Lewis that they did not know anyone in Silver Beach, Lewis reportedly replied: “There’s no way you’re going to get in there.”

Then, after telling Lewis that they had read about the co-ops in the newspaper and they seemed like wonderful communities, Lewis replied that “it’s not wonderful for everybody,” that “it’s just…mostly Irish…and mostly Italian…very few people of any kind of, you know, ethnic color,” that “they’re very … kind of prejudiced,” that the black testers “wouldn’t be happy there,” that “it’s like Archie Bunker territory,” and further told them about an incident 15 to 20 years earlier where a cross was burned in the yard of a house just outside of Edgewater.

Citing the requirement for three references as a bar, Lewis refused to show the black testers any homes for sale in either one of the co-ops. Instead, Lewis instructed her husband to show them a home in a racially mixed area of the Bronx that was, according to Lewis, “two blocks from the projects” and was priced above the testers’ stated price range.

Silver Beach made a motion to dismiss the complaint for failure to state a claim. It argued that Lewis was not an agent of Silver Beach, and that it could not be held responsible for her actions; that Silver Beach did not know the racial identity of the black testers and did not have any contact with them; that Silver Beach did not receive or deny an application; and that the complaint failed to allege that the black testers were qualified to purchase a home in Silver Beach.

The court found that each of Silver Beach’s arguments in support of its motion to dismiss rested on the premise that Silver Beach had no direct contact with the black testers and that, therefore, FHJC sought to hold Silver Beach liable solely based on the statements and actions of Lewis, who it claimed was an independent, unaffiliated individual co-defendant. The court explained, however, that this argument mischaracterized plaintiff’s claims.

FHJC did not seek to hold Silver Beach liable based on statements made by Lewis; rather, FHJC claimed that the policy that required prospective purchasers to obtain references from three members of the community was discriminatory. FHJC stated that Lewis’ actions were not, in and of themselves, a basis for liability on the part of the co-op, but were relevant and admissible evidence on the issue of the actual purpose and effect of the three-reference requirement of Silver Beach and Edgewater.

The court noted that the statements attributed to Lewis in the complaint indicated that Silver Beach and Edgewater had very few or no black members. Silver Beach claimed that plaintiff failed to show intentional discrimination, however, because there were no allegations that it was aware of the race of the applicants and the statements made by Lewis could not be attributed to them.

The court explained that this was not the basis of the claims by FHJC and that the testers, also plaintiffs, only brought claims against Lewis. FHJC’s claims were based on the theory that the requirement for references and its selective enforcement (i.e., accommodations were made for white purchasers and not for black ones) were discriminatory.

The court noted that comments alleged to have been made by Lewis and the Silver Beach office staff supported the allegations of discrimination and that the three-reference policy was selectively enforced.

In addition, FHJC claimed “disparate impact” discrimination. Silver Beach argued that this claim should have been dismissed because the complaint failed to allege that the Silver Beach business office treated the black tester differently.

The court noted Silver Beach’s misstatement of the claim and discussed that, in order to prove a housing discrimination claim based on a theory of disparate impact, a plaintiff must have established that a racially neutral practice or policy “actually or predictably results in…discrimination; in other words that it has a discriminatory effect” on a protected class of people.

The court discussed previous cases that determined that policies similar to the ones adopted by defendants were held to have an illegal disparate impact. FHJC alleged a discriminatory effect through statistical data that showed that the policy of requiring three references served to exclude black homebuyers from co-ops in the Bronx, in which 35 percent of owner-occupied homes were owned by blacks, because it required three references from residents in two nearly all-white communities. The court also permitted plaintiffs to assert claims based on the Federal Civil Rights Act and applicable state laws.

Edgewater sought to have the complaint dismissed against it on the theory that FHJC, a fair housing organization, did not have the right to sue. Relying on prior cases, the court determined that FHJC had the right to conduct investigations of discriminatory housing practices and begin actions in the event it believed there was discrimination.

The courts have determined that where a building owner is engaged in racial steering practices, it perceptibly harmed the fair housing organization’s mission of protecting the interests of low and moderate-income homebuyers and that the organization suffered an injury. Thus, FHJC had the right to sue.

Edgewater contended that FHJC’s claims were flawed and should have been dismissed because it failed to trace the alleged injury to the alleged illegal conduct, i.e., it failed to actually test Edgewater. The court disagreed, however, relying on prior, similar cases. It found that FHJC sufficiently alleged causation even though the testers submitted no applications for housing with either co-op and had no personal contact with Edgewater. The court explained that causation was satisfied by alleging, as FHJC did, that defendants’ actions and reference policies constitute “otherwise making unavailable or denying a dwelling to any person, in terms conditions, or privileges of sale or lease of a dwelling because of race or color, in violation of … the Fair Housing Act…” and “constitute” discrimination against any person “in the terms, conditions, or privileges of sale or lease of a dwelling because of race or color, in violation … of the Fair Housing Act…”

The court considered the elements of Edgewater’s motion to strike prejudicial material contained in the complaint and explained that, while courts have discretion, the courts generally disfavor such motions. In such a motion to strike, a party must show that (1) no evidence in support of the allegation would be admissible; (2) the allegation had no bearing on relevant issues; and (3) allowing the allegation to stand would result in prejudice to the party making the movement.

The court found that the statements by Lewis, residents of Edgewater, and employees of Silver Beach were admissible as evidence of the discriminatory purpose, intent, and impact of the reference policy. These statements provided support for plaintiff’s central allegation; namely, that the policy had a discriminatory purpose and/or a disparate impact and that defendants, by bringing the policy into existence and selectively enforcing it, engaged in illegal discrimination. The co-op’s motions to dismiss were denied.

Comment: This case discusses two forms of discrimination and raises the question of whether facially neutral policies and procedures of a co-op or condo could be considered discriminatory. Although in the context of a motion to dismiss, the court concluded that a policy requiring prospective purchasers to obtain references from three current owners in co-op communities constitutes a sufficient basis to allow a complaint based on “disparate impact discrimination,” i.e., where a policy does not discriminate on its face but, when implemented, has the effect of discriminating. The court made note of the fact that residents of the co-ops are predominantly white in an area where homeowners are 35 percent black. It is unclear whether the court would have permitted the claim to go forward if the co-ops were racially mixed.

The court also considered statements made by a real estate agent and employees of one of the cooperatives in order to determine that plaintiff had the right to attempt to prove “intentional discrimination” by virtue of a claimed selective enforcement of the three-reference policy. Even though the real estate agent was not an “agent” of either co-op, and her comments could not be directly attributable to them, the court clearly took the statements into consideration when determining that the plaintiff should have the right to prove intentional discrimination.

Finally, we note that, although not part of the motion, the black testers were also plaintiffs, having sued the real estate agent.

It is important for all co-ops and condos to review their policies and procedures to insure that they comply with all discrimination laws and do not – even unintentionally – create a situation where members of a protected class are treated differently from others.

Attorneys:

For Plaintiff : Emery Celli Brinckerhoff & Abady

For Edgewater: Marin Goodman