Hanson v. Veterans Admin.

• Decision Date: 29 September 1986
• Docket Number: No. 85-2618,85-2618
• Parties: Amy HANSON, et al., Plaintiffs-Appellants, v. The VETERANS ADMINISTRATION, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1381

800 F.2d 1381

55 USLW 2262

Amy HANSON, et al., Plaintiffs-Appellants, v. The VETERANS ADMINISTRATION, et al., Defendants-Appellees.

No. 85-2618.

United States Court of Appeals, Fifth Circuit.

Sept. 29, 1986.

James D. Crawford, Douglas N. Candeub, Philadelphia, Pa., for plaintiffs-appellants.

Marilyn S.G. Urwitz, Robert S. Greenspan, Attys., Dept. of Justice, Washington, D.C., for defendants-appellees.

Appeals from the United States District Court for the Southern District of Texas.

Before WISDOM, DAVIS and JONES, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Plaintiffs appeal the dismissal of their claims against the Veterans Administration (VA) alleging racial discrimination in its appraisal practices. We affirm.

I. BACKGROUND

The VA is authorized by the Veteran's Benefits Act, 38 U.S.C.A. Secs. 101-5228 (West 1979), to operate a Home Loan Guaranty Program that allows veterans to obtain home loans under favorable terms including little or no down payment. Under the program, the VA induces qualified private lenders to loan eligible veterans 100% of a home's purchase price by guaranteeing up to 60% of the loan or $27,500, whichever is less. ¹ 38 U.S.C.A. Sec. 1810(c) (West Supp.1986).

Before guaranteeing a loan, the VA hires a fee appraiser to appraise the home being purchased and determine its "reasonable value." The reasonable value is calculated by the "market approach" method; the fee appraiser locates three homes which were sold recently and which are as similar as possible to the property being appraised. The sales price of these three "comparables" is used as a starting point to appraise the subject property; the appraiser may adjust the sales price of the comparable property either up or down depending on the perceived differences between the comparables and the home being appraised. In using this appraisal method, the fee appraiser does not take into consideration a sales price that has been agreed to on the home being appraised.

The appraised value submitted by the fee appraiser is then reviewed by a VA review appraiser who can adopt, modify or reject the estimate. 38 C.F.R. Sec. 4340(b) (1985). When he completes his review, the review appraiser issues a Certificate of Reasonable Value (CRV) which acts as a ceiling above which the VA may not guarantee any loan. 38 U.S.C.A. Sec. 1810(b)(5) (West 1979). Additionally, the veteran must certify that he paid in cash "from his own resources" any difference between the cost of his home and its reasonable value. 38 C.F.R. Sec. 4336(a)(3) (1985). The veteran, however, can request an increase in the CRV amount by submitting additional comparables.

Each appellant ² was party to a different agreement for the sale of property in which a VA guaranteed home loan was sought. ³ The properties at issue in all of the agreements are located in the MacGregor subdivision, a predominantly black, middle class neighborhood, in Houston, Texas. In each instance, the VA's appraisal estimate and CRV value were below the price prospective purchasers had agreed to pay for the property. These "underappraisals," as they are referred to in the industry, caused many of the prospective purchasers to reduce their offers or look elsewhere for a home where a 100% VA loan was available. ⁴

Appellants filed suit against the VA seeking an injunction and damages on the ground that the value of their property was discriminatorily adjusted downward by the VA fee appraisers because MacGregor was a racially mixed neighborhood. As support, appellants offered statistical evidence comparing the percentage of VA underappraisals in MacGregor with that of South Hampton, a white neighborhood allegedly similar to MacGregor. The evidence purported to show that MacGregor had a significantly higher percentage of underappraisals than South Hampton; appellants argued that the underappraisals resulted from the application of racially discriminatory appraisal practices by the VA in violation of the Fair Housing Act of 1968, 42 U.S.C.A. Secs. 3601-3612 (West 1977), the Civil Rights Act of 1866, 42 U.S.C.A. Secs. 1981 & 1982 (West 1981), the Fifth Amendment, and the Thirteenth Amendment.

After a bench trial, the district court dismissed the suit on multiple grounds including a lack of standing, prescription, failure to state a claim and failure to establish discriminatory intent or effect. The district court also dismissed the damage claims on grounds that the VA enjoyed sovereign immunity as to those claims. We find it necessary to reach the following issues: (1) Do appellants have standing to sue the VA; (2) did appellants state a claim; (3) did the district court err in denying relief to appellants on the merits. ⁵

II. STANDING

A.

As a threshold matter, we must consider appellants' standing to bring this suit. The requirement that a litigant have standing to institute litigation in federal court has evolved from two sources: (1) Article III of the Constitution limits the jurisdiction of federal courts to actual "Cases and Controversies;" and (2) courts have imposed additional limitations on litigants predicated on prudential considerations. Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 471, 102 S.Ct. 752, 757, 70 L.Ed.2d 700 (1982). The Article III prong of the standing doctrine requires the plaintiff to "allege personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 3325, 82 L.Ed.2d 556 (1984). This test requires the court to examine (1) whether the alleged injury is "distinct and palpable;" (2) the causal connection between defendant's conduct and the alleged injury; and (3) the causal connection between the alleged injury and the relief sought. Id. at 751, 753 n. 19, 104 S.Ct. at 3325, 3326 n. 19.

Prudential considerations which have been incorporated into the standing doctrine include "the general prohibition on a litigant's raising another person's legal rights, the rule barring adjudication of generalized grievances more appropriately addressed in the representative branches, and the requirement that a plaintiff's complaint fall within the zone of interests protected by the law invoked." Id. at 751, 104 S.Ct. at 3325. These prudential concerns do not, however, apply to suits brought under sections 810 and 812 of the Fair Housing Act, 42 U.S.C. Secs. 3610, 3612, respectively. Congress intended standing under these statutes to be as broad as Article III allows; therefore, courts are without authority to apply their self-imposed restrictions on standing in such suits. Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 109, 99 S.Ct. 1601, 1612, 60 L.Ed.2d 66 (1979). See also Havens Realty Corp. v. Coleman, 455 U.S. 363, 372, 102 S.Ct. 1114, 1120, 71 L.Ed.2d 214 (1982). Because they raise a claim under these statutes, our inquiry into appellants' standing is limited to the requisites of Article III.

B.

Applying the Article III standard, we are persuaded that at least one plaintiff, Professor Otis King, has standing. King contracted to buy the house at 4304 Roseneath for $46,950. He was unable to purchase the house because the VA issued a CRV for $40,000 thereby limiting the amount of the loan they would guarantee, and he was unable to raise $6,950 from his own resources for a down payment. King later agreed to purchase the house at 4106 South MacGregor Way for $55,000. The VA appraised this home and issued a CRV for $51,000. King was able to pay a $4,000 down payment and bought the house. King alleges that racially discriminatory appraisal practices resulted in the VA's underappraisals of these homes which prevented him from acquiring the Roseneath home.

The district court found that the VA's low appraisal of the Roseneath home was based on non-discriminatory factors, such as the presence of termites, dry rot and foundation settlement, and not the racial mix of the neighborhood. The court determined that King's inability to obtain the $6,950 down payment resulted in his withdrawal from the sale and that this "inability cannot be traced to any wrongful act of Defendants." Regarding the South MacGregor house, the district court found that King failed to demonstrate a distinct injury.

We disagree with the district court's conclusion. King undoubtedly suffered a "distinct and palpable" injury, because he was unable to purchase the Roseneath home. See Village of Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 262, 97 S.Ct. 555, 561, 50 L.Ed.2d 450 (1977). The district court apparently found that Professor King's injury--his inability to purchase the Roseneath home--was not related to the VA's conduct because King was unable to prove that the VA's appraisal practices were illegal.

This reasoning misconstrues the purpose and elements of standing. "In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues." Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975). It is inappropriate for the court to focus on the merits of the case when considering the issue of standing. O'Hair v. White, 675 F.2d 680, 685 (5th Cir.1982). In examining the causation element of standing, the question to be asked is whether the line of causation between King's injury and the VA's allegedly biased appraisal method is "too attenuated." Allen, 468 U.S. at 752, 104 S.Ct. at 3325.

We answer this question in the negative. King's inability to purchase the Roseneath home is "fairly traceable" to the low VA appraisal. The VA is barred from guaranteeing a loan in excess of the CRV amount and the regulations require King to raise any additional money necessary for the purchase "from his own resources." Thus, the VA underappraisal had a direct effect on King's ability to purchase the...