Fair Hous. Ctr. of Cent. Ind. v. Rainbow Realty Grp.

Decision Date27 March 2020
Docket NumberCause No. 1:17-cv-1782 RLM-TAB
CourtUnited States District Courts. 7th Circuit. United States District Court (Southern District of Indiana)

Plaintiffs Fair Housing Center of Central Indiana, Inc., Mary Kamano, Norma Tejeda, Cordell Spencer, Maria Gaspar, and Franklin Paz filed suit on behalf of themselves and other similarly situated individuals against defendants Rainbow Realty Group, Inc., founder and director James R. Hotka, and Rainbow's development organization, holding corporation, and associated trusts (collectively referred to as Rainbow in this opinion). The plaintiffs challenge Rainbow's "rent to buy program," alleging that the conditions of the homes Rainbow rents and the terms of its agreements with its customers violate Indiana and federal law. The five individual plaintiffs moved for class certification and the parties filed their responses and replies. The plaintiffs also filed a motion to supplement their motion for certification, and Rainbow objected to the supplement. For the reasons that follow, the court GRANTS IN PART the motion for class certification and DENIES the motion to supplement as moot.


Rainbow Realty Group, Inc. leases and sells property in 13 counties in the Indianapolis area. Through Rainbow's "rent to buy" program, a customer can make monthly principal and interest payments on a home for 30 years, at which time he becomes the owner. The program's contract says that the buyer agrees to make 24 monthly principal and interest payments to Rainbow. Once those 24 payments have been made, Rainbow and the buyer execute a conditional 30-year land sale contract, and the buyer's first 24 payments are credited toward the 30-year agreement. [Doc. No. 140-1, p. 3]. The plaintiffs allege that the program is predatory and discriminatory in violation of state and federal law and seek certification of one class and three subclasses.


To maintain a class action, the plaintiffs and the class they want to represent must meet the requirements under Fed. R. Civ. P. 23. First, the proposed class action must satisfy all four elements of Rule 23(a): numerosity, commonality, typicality, and adequacy of representation. Second, the action must be maintainable under at least one of the three provisions under Rule 23(b). Third, "a class must be sufficiently definite that its members are ascertainable." Jamie S. v. Milwaukee Pub. Sch., 668 F.3d 481, 493 (7th Cir. 2012) (internal citations omitted). The court must conduct a rigorous inquiry into the propriety of proceeding as a class before certifying. Livingston v. Associates Finance, Inc., 339 F.3d 553, 558 (7th Cir. 2003). The plaintiffs have the burden of showing that their proposed class satisfies the requirements under Fed. R. Civ. P. 23 by a preponderance of the evidence. Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 811 (7th Cir. 2012).


The parties agree that the plaintiffs have satisfied the numerosity requirement. The plaintiffs estimate that there might be more than 2,000 class members. [Doc. No. 139-62]. Joinder of that many parties would be impracticable, so the numerosity requirement is satisfied. Arnold Chapman & Paldo Sign & Display Co. v. Wagener Equities Inc., 747 F.3d 489, 492 (7th Cir. 2014).

Typicality and Adequacy of Representation

The parties agree that the individual plaintiffs' claims are typical of the class, with the exception of Maria Gaspar. The defendants alleged at oral argument that Ms. Gaspar's claims aren't typical because her husband originally executed a contract with Rainbow, and the contract was re-executed in Ms. Gaspar's name in 2016. The court notes that Ms. Gaspar personally signed a rent to buy program agreement with Rainbow in the relevant timeframe and is satisfied that she could adequately represent the class.

The plaintiffs say that they, along with the proposed class counsel, can "fairly and adequately protect the interests of the class" as Federal Rule of Civil Procedure 23(a)(4) requires. The five named plaintiffs are customers who signed rent to buy contracts with Rainbow between 2012 and 2017. [Doc. Nos. 140-1, 140-2, 140-3, 140-4, and 140-5]. Nothing in the plaintiffs' conduct suggests they won't continue to pursue the litigation vigorously on the class's behalf, nor does the record suggest class counsel isn't qualified, experienced, and able to conduct the litigation.


Parties can only sue as a class if "there are questions of law or fact common to the class." Fed. R. Civ. P. 23(a)(2). A question that must be answered individually for each class member depending on his circumstances isn't a common question. Jamie S. v. Milwaukee Pub. Sch., 668 F.3d 481, 498 (7th Cir. 2012). Nor is "the mere occurrence of all plaintiffs suffering as a result of a violation of the same provision of law" sufficient grounds for class certification. Chicago Teachers Union, Local No. 1 v. Bd. of Educ. of City of Chicago, 797 F.3d 426, 434 (7th Cir. 2015) (citing Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011)). A class's claim must depend on a common contention that can be resolved as to all class members at once, "which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke." Wal-Mart Stores, 564 U.S. at 350.

Rainbow argues that the plaintiffs haven't identified a common question that can be resolved class-wide. The plaintiffs argue that their claims against Rainbow present four categories of common questions appropriate for class certification. They allege:

(1) Rainbow has engaged in reverse redlining in violation of the Fair Housing Act and Equal Credit Opportunity Act;
(2) Rainbow is subject to Indiana landlord-tenant laws on safety and habitability, and its disclaimer of these duties on its form agreement is unlawful;
(3) Rainbow deceives customers in violation of the Indiana Home Loan Practices Act; and
(4) Rainbow is subject to and violates four provisions of the Truth in Lending Act.

The court addresses each category of claims in turn.

Reverse Redlining Claim

The plaintiffs' complaint alleges that Rainbow's rent to buy program is discriminatory against and has a disparate impact on racial minorities in violation of the Fair Housing Act and Equal Credit Opportunity Act - a claim commonly known as reverse redlining.

Redlining, or excluding a person from renting or purchasing a dwelling on the basis of his membership in a protected class, is unlawful under the Fair Housing Act and Equal Credit Opportunity Act. The Fair Housing Act prohibits "discriminat[ing] against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, familial status, or national origin." 42 U.S.C. § 3604(b). The Equal Credit Opportunity Act prohibits creditors from "discriminat[ing] against any applicant, with respect to any aspect of a credit transaction—on the basis of race, color, religion, national origin, sex or marital status, or age." 15 U.S.C. § 1691(a)(1). See also Texas Dep't of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507, 2521-2522 (2015) (The Fair Housing Act was enacted to address discriminatory practices "includ[ing] zoning laws and other housing restrictions that function unfairly to exclude minorities from certain neighborhoods without any sufficient justification."); Halprin v. Prairie Single Family Homes of Dearborn Park Ass'n, 388 F.3d 327, 328 (7th Cir. 2004) ("The language [of 42 U.S.C. § 3604] indicates concern with activities, such as redlining, that prevent people from acquiring property.").

Similarly, the Fair Housing Act prohibits extending credit to a protected class of people on terms less favorable than those offered to people outside of the protected class, which the plaintiffs refer to as reverse redlining. Stevens v. Hous. Auth. of S. Bend, Indiana, 663 F.3d 300, 310 (7th Cir. 2011) ("[42 U.S.C.] Section 3604(b) applies to discrimination linked to any terms, conditions, or privileges that accompanied or were related to a plaintiff's acquisition of her property."); see also Cty. of Cook v. Wells Fargo & Co., 115 F. Supp. 3d 909, 919 (N.D. Ill. 2015) ("Reverse redlining, by definition, is 'discriminat[ion] against any person... in the terms or conditions of [a mortgage loan] because of' a protected trait.") (quoting 42 U.S.C. § 3605(a)) (ellipsis in original). To bring a claim of discrimination under the Fair Housing Act or the Equal Credit Opportunity Act, a plaintiff must prove that the defendants' conduct has a disparate impact on members of a protected class or that the defendants had a discriminatory intent. Estate of Davis v. Wells Fargo Bank, 633 F.3d 529, 539 (7th Cir. 2011); Bloch v. Frischholz, 587 F.3d 771, 784 (7th Cir. 2009).

Rainbow argues that its program isn't predatory, and that because the condition of each rent to buy home at the time of sale varies, this claim can't be answered class wide. The court won't address Rainbow's arguments that its program isn't predatory at this stage. Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455, 466 (2013) (at the class certification stage, the court only considers the merits of a claim to the extent necessary to determine whether the claim meets Rule 23's requirements). The plaintiffs' reverse redlining claim can be resolved without analyzing the condition of individual rent to buy homes. Whether Rainbow's program is discriminatory or has a disparate impact in violation of the Fair Housing Act and the Equal Credit Opportunity Act is a question that can be answered as to all plaintiffs at once. Accordingly, this claim raises a common question.

Habitability Claim

The plaintiffs next argue that Rainbow is...

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