Anderson v. Wachovia Mortgage Corp.: the Third Circuit Correctly Applied the Mcdonnell Douglas Burden-shifting Framework to Lending Discrimination

• Publication year: 2022

45 Creighton L. Rev. 425. ANDERSON V. WACHOVIA MORTGAGE CORP.: THE THIRD CIRCUIT CORRECTLY APPLIED THE MCDONNELL DOUGLAS BURDEN-SHIFTING FRAMEWORK TO LENDING DISCRIMINATION

ANDERSON V. WACHOVIA MORTGAGE CORP.: THE THIRD CIRCUIT CORRECTLY APPLIED THE MCDONNELL DOUGLAS BURDEN-SHIFTING FRAMEWORK TO LENDING DISCRIMINATION

Michael J. Daly - '13

I. INTRODUCTION

When the United States Supreme Court developed a burden-shifting framework for analyzing and adjudicating employment discrimination cases, it qualified application of the framework to a single context.(fn1) In McDonnell Douglas Corp. v. Green,(fn2) the Supreme Court held that in cases involving employment discrimination, courts should use a three-step analysis that shifts the burden of proof between the plaintiff and defendant to determine whether the defendant has acted in a discriminatory manner.(fn3) Since then, courts have extended the use of the McDonnell Douglas burden-shifting framework to other contexts, such as housing and lending discrimination.(fn4) Despite several courts of appeals extending the burden-shifting framework to the lending context, in Latimore v. Citibank Federal Savings Bank,(fn5) the United States Court of Appeals for the Seventh Circuit declined to apply the analysis to a case of lending discrimination.(fn6)

In Anderson v. Wachovia Mortgage Corp.,(fn7) the United States Court of Appeals for the Third Circuit disagreed with the Seventh Circuit and held it proper to apply the McDonnell Douglas burden-shifting framework to lending discrimination cases.(fn8) In Anderson, three African-American couples sought mortgages for the purchase of three homes near Dover, Delaware.(fn9) Although the couples received their mortgages, Wachovia Mortgage Corporation ("Wachovia") imposed several conditions on the mortgages, which the couples found oner-ous.(fn10) When the couples brought a claim of lending discrimination, the United States District Court for the District of Delaware granted summary judgment for Wachovia.(fn11) The Third Circuit applied the burden-shifting framework, finding the couples had proven a prima facie case of discrimination, but Wachovia had offered legitimate non-discriminatory reasons that were not pretextual, and affirmed the order of summary judgment.(fn12)

This Note will first review the facts and holding of Anderson.(fn13)This Note will then discuss the McDonnell Douglas burden-shifting analytical framework and its application beyond the employment context.(fn14) This Note will argue that the Third Circuit was correct to apply the burden-shifting framework to the lending context.(fn15) This Note will show that the Seventh Circuit's refusal to use the burden-shifting framework in lending discrimination cases is based on the adoption of an unnecessary competitive component as part of the framework.(fn16) This Note will also demonstrate that applying the burden-shifting framework to cases involving lending discrimination effectuates the purposes of anti-discrimination statutes.(fn17) Finally, this Note will conclude that, in Anderson, the Third Circuit properly applied the burden-shifting analysis in the lending context.(fn18)

II. FACTS AND HOLDING

In Anderson v. Wachovia Mortgage Corp.,(fn19) three African-American couples who purchased houses in Dover, Delaware, brought a claim of racial discrimination against the mortgagee of their houses, Wachovia Mortgage Corporation ("Wachovia").(fn20) Plaintiffs Tolano and Cathy Anderson, Dr. Lloyd and Audria Wheatley, and Richard and Brenda Wilkins (collectively, "the Buyers") entered into an agreement on June 18, 2004, with Peter Aigner to purchase three adjacent houses in Dover.(fn21) The parties agreed to a collective purchase price of $800,000 and a joint deposit of $40,000, with the closing set for August 6, 2004.(fn22) Following entry into the purchase agreement, the Buyers sought financing from Wachovia, which assigned loan officer J.D. Hog-sten to their case.(fn23)

Wachovia made each of the couples' mortgages subject to a different set of conditions.(fn24) Wachovia questioned the Wilkinses for using a convenience check they had procured from their credit card company to pay for the earnest money deposit.(fn25) Wachovia later determined that the issue was resolved when the mortgage underwriter discovered Richard Wilkins had secured a loan to pay down the credit card balance and granted the mortgage.(fn26)

Wachovia conditioned the mortgages on appraisal of the homes.(fn27) John Mullens, the appraiser Wachovia commissioned to assess the Anderson home, informed Hogsten that he could not appraise the property because the property's livability was questionable.(fn28) The issues included missing drywall, extensive water damage, exposed insulation, and mold.(fn29) Mullens informed Wachovia that he could not appraise the Anderson home without certifications from specialists regarding the extent of the damage and a contractor's estimate for re-pairs.(fn30) Mullens also claimed that because he was unaware of properties with a similar location and comparable state of disrepair, he could not appraise the home.(fn31) Because the completion of the mortgage was conditioned on appraisal of the property, Tolano Anderson contacted another appraiser, Carl Kaplin.(fn32) Kaplin provided Anderson with a list of comparable properties.(fn33) Anderson requested an independent appraiser after he shared the list with Hogsten and the independent appraiser assessed the value of the property to be equal to the purchase price of $267,000.(fn34) Despite Wachovia's approval of the appraisal of the Anderson property, Wachovia conditioned completion of the mortgage on repairs necessary for the house's livability, which were difficult for the Andersons to procure due to the urgently impending closing date.(fn35) Notwithstanding the difficulties, the Andersons were able to complete the repairs and the sale on the agreed date of August 6, 2004.(fn36)

Wachovia required the Wheatleys to satisfy several conditions before approving their loan.(fn37) Wachovia initially denied the Wheatleys' application for a non-income-verification loan because Lloyd Wheatley's credit score did not meet loan requirements.(fn38) The Wheatleys reapplied but changed the application to a stated-income loan; the non-income-verification loan required a 15% down payment whereas the stated-income loan required a 10% down payment.(fn39) Hogsten then informed Lloyd Wheatley that he must improve the house to livable condition before closing, despite knowing that such requirements would create difficulties for the Wheatleys because it prevented them from improving their current home.(fn40) After the repairs were completed, an appraiser completed a second appraisal and tendered a completion certificate to Wachovia.(fn41) Unbeknownst to the Wheatleys until the day of closing, Wachovia also required an additional completion certificate from a roofing contractor showing the necessary repairs had been completed.(fn42)

After the seller arranged for his personal contractor to submit the necessary paperwork, Wachovia required the Wheatleys to pay an additional 10% down payment because an exceptions officer had reclassi-fied the loan as an exception loan, which required a 20% total down payment.(fn43) When the Wheatleys acquired funds from joint accounts for the additional down payment, Hogsten informed them they no longer had adequate cash reserves to qualify for the loan.(fn44) The Wheatleys then attempted to make up the additional down payment with assets from their business, which elicited an additional underwriting requirement from Wachovia for an accountant's confirmation regarding the filing of the business's tax return.(fn45)

The Buyers filed claims in the Superior Court of the State of Delaware against Wachovia.(fn46) Wachovia had the case removed to the United States District Court for the District of Delaware.(fn47) When discovery was almost complete, the Buyers filed a second amended complaint containing claims against Wachovia for violations of 42 U.S.C. § 1981,(fn48) breach of contract, breach of good faith and fair dealing, and tortious interference.(fn49) Wachovia filed a motion for summary judgment, which the district court granted for the § 1981 violation, breach of contract, and tortious interference claims, but not for the good faith and fair dealing claim, which was remanded to the Delaware state court.(fn50)

The Buyers appealed the district court's grant of summary judgment to the United States Court of Appeals for the Third Circuit.(fn51) The Buyers supported their allegation that the requirements Wachovia had imposed were discriminatory under § 1981 by presenting three types of evidence.(fn52) First, the Buyers presented evidence regarding the racial composition of the Silver Lake community to support the argument that Wachovia was attempting to prevent African-Americans from moving into a primarily Caucasian neighborhood by imposing burdensome conditions on the Buyers' mortgages.(fn53) Not only did the Buyers testify to the racial makeup of the community, but the Buyers also submitted an affidavit from a local insurance agent attesting to common knowledge that Caucasian families predominantly owned the property of the Silver Lake community.(fn54) Moreover, Anderson testified that Deanne Wicks, an employee of Wachovia not associated with the mortgage transactions, told him that many people were displeased...