Helen Latimore v. Citibank Federal Savings Bank, Marcia Lundberg, and Ed Kernbauer

Citations: 151 F.3d 712; 1998 U.S. App. LEXIS 18391; 1998 WL 461902Docket: 97-3724

Court: Court of Appeals for the Seventh Circuit; August 10, 1998; Federal Appellate Court

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Helen Latimore, a black woman, filed a lawsuit against Citibank Federal Savings Bank and two employees, alleging racial discrimination in real estate lending under various federal civil rights laws, including the Equal Credit Opportunity Act and the Fair Housing Act. The district court granted summary judgment in favor of the defendants. Latimore's appeal focuses on the standard for establishing a prima facie case of credit discrimination and what evidence is necessary to survive a summary judgment motion.

Latimore owned a home in a predominantly black neighborhood in Chicago and applied for a $51,000 loan from Citibank, meeting the bank's creditworthiness criteria. However, the bank required that the loan-to-value ratio not exceed 75%, and the appraiser, Ed Kernbauer, valued her home at $45,000, resulting in a loan-to-value ratio of 113%. When account executive Marcia Lundberg informed Latimore that the appraisal was too low, Latimore referenced a prior appraisal of $82,000. Lundberg requested this report and forwarded it to the bank's appraisal review department, which upheld Kernbauer's assessment, arguing that the properties used for the earlier appraisal were not comparable.

As a result, Latimore was denied the loan. Later, she obtained a loan from another bank for $46,000 at a higher interest rate, based on an appraisal of $79,000. Latimore seeks damages for the additional interest and certain consequential damages resulting from the denial of the Citibank loan.

In discrimination cases, a plaintiff can establish a prima facie case by demonstrating actual discrimination based on prohibited grounds, such as race, or by meeting the McDonnell Douglas standard. This standard requires the plaintiff, in an employment discrimination scenario like denial of a promotion, to show qualification for the promotion and that a less qualified individual of a different race received it. The employer must then provide a legitimate, non-discriminatory reason for the decision. Although initially applied to racial discrimination in employment, the McDonnell Douglas framework has been extended to various forms of discrimination beyond employment. Courts have acknowledged this extension in cases such as Simms v. First Gibraltar Bank and Moore v. U.S. Department of Agriculture. However, applying the McDonnell Douglas standard directly to credit discrimination cases may overlook its conceptual underpinnings. The burden of proof typically rests with the plaintiff, and shifting this burden to the defendant requires a valid basis beyond mere difficulty in obtaining evidence. If not, it could lead to excessive pre-complaint discovery, allowing any party to compel evidence production without sufficient grounds.

A qualified black applicant's rejection for a promotion in favor of a white counterpart creates a minimal suspicion, requiring the defendant to provide a non-discriminatory reason for the decision. However, the competitive dynamic observed in employment discrimination cases, such as McDonnell Douglas, does not apply to credit discrimination situations, as seen in Latimore's case. Latimore did not compete directly for a loan, as banks do not invite applications in a competitive manner akin to job promotions. In a hypothetical scenario where a black and white applicant submitted loans under comparable conditions, discrimination might be more evident. The Supreme Court has clarified that the McDonnell Douglas framework is not universally applicable to all discrimination cases. 

In Diaz v. Fort Wayne Foundry Corp., it was noted that the framework is unsuitable when comparing treatment among similarly situated individuals is not possible. The bank contends that Latimore must not only demonstrate her creditworthiness but also meet the appraiser's valuation, which she did not. However, Citibank's criteria do not hinge solely on its appraiser's opinion, as the bank accepts evaluations from other sources and has an appraisal review department to reassess appraisals. Latimore's assertion that her house's location and an external appraisal should suffice for loan approval is flawed, as banks typically do not lend up to the full collateral value and have valid appraisal practices. A mere discrepancy between appraisals does not constitute reasonable suspicion of racial discrimination.

Latimore's prima facie case lacks a direct comparison between the treatment of Black and White individuals, which is essential under the McDonnell Douglas framework. In a hypothetical scenario where Latimore and a White applicant, Eromital, apply for loans simultaneously, the refusal of Citibank to approve Latimore’s application while approving Eromital’s, despite similar qualifications and collateral, would necessitate an explanation from the bank. However, no such comparative analysis was made in Latimore's case. Consequently, neither the McDonnell Douglas framework nor any variations of it apply to her situation. Nonetheless, a plaintiff in discrimination cases can still present conventional evidence of discrimination without relying on burden-shifting doctrines. Latimore attempted to do this by hiring an expert for a retrospective appraisal of her home, which was valued at $62,000. However, this appraisal did not support her loan request under Citibank’s 75 percent rule, which is not claimed to be racially discriminatory. The rule indicated that her home’s appraisal would only justify a $46,500 loan, which aligns with what she obtained from another bank, albeit at a higher interest rate. Additionally, the variability in real estate appraisals does not inherently indicate discrimination, and Citibank’s conservative appraisal methods might be aimed at maintaining lower interest rates. Ultimately, while Latimore managed to secure a loan, it was less than desired and at a higher cost.

Latimore claims Citibank showed favoritism to white loan applicants who were similarly situated to her, as both sought loans of equivalent amounts secured by properties with the same appraised value. She argues that Lundberg, a bank representative, actively assisted these white borrowers in finding additional comparable sales to increase their property appraisals. In contrast, when Latimore received a low appraisal, Lundberg only encouraged her to submit a higher appraisal without providing additional assistance to find comparables, suggesting that Lundberg treated her less favorably. 

Additionally, the notes used by the appraiser, Kernbauer, were lost when his branch closed, although Citibank retained the appraisal report itself. The bank was required to keep both the report and the notes for 25 months post-denial of Latimore's application under 12 C.F.R. 202.12(b)(1)(i). The loss of the notes creates a presumption that they contained evidence unfavorable to Citibank, but the bank's uncontested explanation indicated the loss was inadvertent, which does not constitute a regulatory violation under 12 C.F.R. 202.14(c). 

Ultimately, even when considering the evidence in the light most favorable to Latimore, the court found no reasonable jury could conclude that her loan application was denied due to racial discrimination, affirming the summary judgment in favor of the defendants.

The court expresses disapproval of the plaintiff's choice to include appraiser Kernbauer as a defendant in the case. While the Fair Housing Act holds any person liable for discrimination, and the Equal Credit Opportunity Act includes creditors—potentially encompassing appraisers—there is no evidence suggesting Kernbauer's appraisal was racially motivated. In 1993, Kernbauer appraised 69 properties owned by Black individuals, with only two applications declined, indicating no discriminatory intent. Although the bank's attorneys do not seek sanctions for what is deemed a frivolous claim against Kernbauer, the court cautions against the indiscriminate joining of minor employees as defendants in employer-related lawsuits. The decision is affirmed.