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Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

Don’t Discriminate

Read this article in the digital edition.

In the November 2010 Habitat, we reported on Fair Housing Justice Center v. Silver Beach Gardens Corp., involving two co-op developments, Silver Beach and Edgewater Park. The Silver Beach portion of the case was settled, but the Edgewater was tried and a new decision was issued under the name of FHJC v. Edgewater Park Owners Cooperative, Inc. that further addressed the question of whether FHJC could pursue its case against Edgewater. Briefly, the complaint alleged that Edgewater, a co-op housing corporation located in the Bronx, 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. Edgewater’s motion to dismiss the complaint was denied. There was a more recent decision, which we will now discuss.

Edgewater is a co-op located in the Throgs Neck section of the Bronx, consisting of 675 single-family, unattached homes. Defendant Amelia Lewis (who also settled with Fair Housing Justice Center, or FHJC) was an independent real estate broker who showed homes in Edgewater. Edgewater made up a large portion of her real estate business.

The decision reported that FHJC began an investigation into Edgewater after an article appeared in The New York Times that described Edgewater as not “open to just anyone.” The article stated that prospective buyers were required to obtain references from three current residents. FHJC sent both black and white testers to meet with Lewis to inquire about housing at Edgewater.

On September 18, 2009, a white tester, posing as a married woman with no children, met with Lewis. Lewis informed the tester that she would arrange for her to see five houses at Edgewater, all at prices below $300,000. (In the end, Lewis’ husband showed the tester a total of eight homes at Edgewater.) Lewis described the co-op as “very nice” and “mostly ethnic Irish, German, Italian . . . there’s some Puerto Rican, not many.” Lewis also said the co-op “would love” the tester. When the white tester asked about the reference policy and informed Lewis that she did not know anyone in the community, Lewis downplayed the importance of the policy, described the admission procedures as “technicalities” and said she would help the tester satisfy the requirements.

On September 29, 2009, the black testers, posing as a married couple, met with Lewis to ask about homes in Silver Beach (not Edgewater) that were priced below $300,000. On the phone, Lewis told one of the testers that she had a home available to show. The in-person conversation between Lewis and the testers is set forth in detail in the decision. Lewis described Edgewater and Silver Beach as “the same” and asked if the testers knew three residents. When they said they did not, Lewis stated, “There’s no way you are going to get in there.” Lewis stated that she could not help with references. When the black testers said that the co-ops looked like wonderful communities, Lewis replied that there were very few people of color and that “it is like Archie Bunker territory.” Lewis related a story that 15 or 20 years ago a cross was burned in the yard of a house just outside Edgewater. Lewis cited the reference requirement as a “categorical bar” to showing apartments. Instead, Lewis wanted to show them a home “two blocks from the projects” that was above the testers’ stated price range. None of the testers ever spoke with a representative of Edgewater. Edgewater did not directly accept applications from prospective buyers, nor did it show homes.

The court discussed two types of discrimination: intentional discrimination based on disparate treatment and disparate impact discrimination. As to intentional discrimination, Fair Housing Justice Center alleged that the three-reference rule was “intentionally designed and used to maintain the racial status quo” of Edgewater. FHJC claimed that the rule acted as a barrier to minority ownership since the rule was not similarly applied to white purchasers. FHJC based these claims on the statements of Lewis; Edgewater argued that there was no evidence that the rule was applied with the purpose of excluding black Americans.

The court explained that in order to establish a claim under the relevant statute, FHJC had to demonstrate that race was a motivating factor in Edgewater’s three-reference policy. It could establish a prima facie case by showing (1) that the testers were members of a protected class; (2) that they sought and were qualified to purchase; (3) that they were rejected; and (4) that the house remained available to others. Discriminatory content could be deduced from the “totality of circumstances” and courts were to consider factors such as the impact of the policy, the historical background of the policy, the events that led to the challenge, departures from normal procedures, and departures from normal substantive criteria.

Further, once a plaintiff established a prima facie case, the burden shifted to the defendant to assert a legitimate and non-discriminatory reason why the applicants were denied. Should the defendant meet that burden, the plaintiff had to demonstrate that discrimination was at the heart of the defendant’s actions. The court explained that a plaintiff’s initial burden was minimal.

Edgewater argued that FHJC discovered no documents or testimony that substantiated the allegation that the “three-reference rule” was adopted or applied with discriminatory intent.

The court agreed that FHJC did not demonstrate direct evidence that racial animus was behind the rule, but found that there was sufficient circumstantial evidence for a jury to find that race played a role in the housing application process.

Edgewater argued that Lewis was not an agent, employee, or representative of Edgewater and that therefore her comments could not have been attributed to Edgewater. The court explained that FHJC was not suing Edgewater based on the statements and actions of Lewis, but rather it argued that the co-op’s three-reference policy violated the applicable statutes. Moreover, Lewis’ statements about how the rule was applied were evidence that the rule was an actual barrier to entry for racial minorities.

Edgewater contended, however, that blacks have applied to and were accepted by Edgewater. Further, there was no evidence that any blacks were rejected for failing to meet the rule requiring references. Notwithstanding that, Edgewater failed to identify any blacks living at Edgewater or any who had applied.

Board members testified as to the reason for the three-reference rule. They gave slightly different answers. They asserted the need to confirm the potential buyer’s financial soundness and lack of a criminal record. The court noted “troubling inconsistencies” when board members described what constituted a good reference and who could provide one. Notably, there were discrepancies about whether the requirement that one giving a reference live in the co-op for one year was actually adhered to, whether the individual selling the house could provide a reference, and whether there was a requirement that the one giving the reference knew the prospective buyer. Subjective criteria in the application of rules may be used as circumstantial evidence, the court explained.

As to FHJC’s claim based on disparate impact, the analysis was whether a facially neutral policy or rule had a different impact on a particular group of people. There, a prima facie case was established by showing that the practice “actually or predictably results in racial discrimination.” A plaintiff need not show intent, just a discriminatory effect. A plaintiff must show (1) the occurrence of an outwardly neutral practice; (2) a significantly adverse or disproportionate impact; and (3) discrimination as a result of the practice.

FHJC planned to provide the discriminatory impact through expert evidence. Edgewater claimed that FHJC could not show any causal connection; however, in disparate impact discrimination matters, a plaintiff had the right to demonstrate its case through statistical evidence.

The record showed significant racial disparity. Based on 2010 census data, 36.6 percent of homeowners in the Bronx, 15.4 percent in Manhattan’s metropolitan area; and .9 percent (6 out of 675 households) in Edgewater were black. Further, 39.1 percent of co-op owners in the Bronx; 14.2 percent in the New York metropolitan area; 35.1 percent of black households in the Bronx had an income sufficient to live at Edgewater; and 14.5 percent of black households in the New York metro area had sufficient income.

Edgewater challenged this analysis, asserting that the expert who compiled it used data for inappropriate areas and thus drew incorrect conclusions.

A motion for summary judgment may be granted only where there were no genuine issues of material fact so that the movant was entitled to judgment as a matter of law. The court is required to resolve all ambiguities and credit all inferences in favor of the party opposing the motion. The non-moving party has to raise non-conclusory, affirmative indications that its version of the event occurred. Summary judgment should be denied where the evidence is such that a reasonable jury could decide in favor of the non-moving party.

The court denied Edgewater’s motion for summary judgment, determining that there were issues of fact that would have to be determined by a jury.

Comment: The court discussed intentional discrimination and the way in which the actions of an independent real estate broker can be used as circumstantial evidence of discrimination. Specifically, the court found that a jury could determine that the broker’s actions, even though she was not an agent or employee of the co-op, were evidence of intentional discrimination.

The court also discussed “disparate impact” discrimination and cited statistics offered by the plaintiff based on census data. The statistics were glaring: the percentage of blacks who owned homes at Edgewater (to the extent there were any – the decision was not entirely clear on this point, apparently because Edgewater was not clear) was far less than the percentage of black homeowners in the Bronx and in New York City.

Further, the court considered that the board members could not agree on who was eligible to give a reference under the three-reference rule. It is important for boards to remember that when a rule is in place, it must be applied uniformly, unless there is a good and identifiable reason for deviation.

As we set forth in our November 2010 “Case Notes” comment, this case reminds us that it is important for all co-ops and condos to review their policies and procedures to ensure that they comply with all discrimination laws. There should not be a situation where members of a protected class are treated differently, even if the disparate treatment is unintentional and solely as a result of a policy that has been in place many years.

Attorneys

For Plaintiffs
Emery Celli Brinckerhoff & Abady

For Defendants
Marin Goodman

 

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