Johnson and Leadership Council v. Kakvand, 97-3893

• Decision Date: 15 October 1999
• Docket Number: No. 97-3893,97-3893
• Citation: 192 F.3d 656
• Parties: (7th Cir. 1999) BARBARA JOHNSON and LEADERSHIP COUNCIL FOR METROPOLITAN OPEN COMMUNITIES, a not-for-profit Illinois corporation, and on behalf of persons similarly situated, Plaintiffs-Appellees, v. MIKE KAKVAND, Defendant-Appellant
• Court: U.S. Court of Appeals — Seventh Circuit

Page 656

192 F.3d 656 (7th Cir. 1999)

BARBARA JOHNSON and LEADERSHIP COUNCIL FOR METROPOLITAN OPEN COMMUNITIES, a not-for-profit Illinois corporation, and on behalf of persons similarly situated, Plaintiffs-Appellees, v. MIKE KAKVAND, Defendant-Appellant.

No. 97-3893

United States Court of Appeals, Seventh Circuit

Argued September 10, 1998

Decided September 17, 1999

Rehearing Denied October 15, 1999

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 95 C 1650--David H. Coar, Judge.

Before Coffey, Easterbrook and Kanne, Circuit Judges.

Coffey, Circuit Judge.

Barbara Johnson and the Leadership Council for Metropolitan Open Communities sued Liberty Mortgage Corporation Northwest ("Liberty") and its president and sole shareholder, Mike Kakvand, alleging violations of the Fair Housing Act, 42 U.S.C. sec. 3601 et seq., the Equal Credit Opportunity Act, 15 U.S.C. sec. 1691 et seq., and the Illinois Consumer Fraud and Deceptive Practices Act, 815 ILCS sec. 505/1 et seq. Liberty and Kakvand failed to respond to the complaint, and the district court entered a default judgment against them on liability. At the same time, the district court granted the injunctive relief the plaintiffs sought. It required that Liberty and Kakvand take a variety of steps to eliminate racial discrimination and promote equal opportunity in Liberty's lending practices.

During the ensuing discovery on the damages issues, Liberty and Kakvand repeatedly refused to comply with discovery requests and disobeyed court orders requiring them to comply with discovery. The district court ultimately imposed a sanction of $10,000 pursuant to Federal Rule of Civil Procedure 37. On the eve of the scheduled date for the hearing to establish damages, Liberty filed for bankruptcy. The district court severed the claims against Liberty and permitted the plaintiffs to proceed against Kakvand alone. At the close of the hearing, the district court awarded the plaintiffs $18,756.46 in compensatory and punitive damages. The court later granted the plaintiffs' request for attorneys' fees in the amount of $165,883.25.

Kakvand appeals only the Rule 37 sanction of $10,000 and the award of attorneys' fees. We affirm.

I. BACKGROUND

Barbara Johnson, an African-American woman who teaches in the Chicago Public School system, bought a home in what the plaintiffs describe as "a predominantly African-- American neighborhood" in 1991 and financed the purchase with a 30-year mortgage at 9.5% interest. Johnson's payments on the mortgage were timely, and in fact, in an effort to pay down the loan faster she paid an extra amount toward the principal each month. In 1993, she saw an advertisement from Liberty Mortgage for a 15-year mortgage refinance at 7.0% interest. She telephoned Liberty, spoke with Liberty agent Anthony Jeter, and set up an appointment to initiate the loan application process. When Johnson arrived at the office, Jeter talked briefly with her, photocopied her driver's license and credit card, and told her that everything looked great and that she could begin filling out papers once she paid a $300 application fee. Johnson complied and paid the fee. She was surprised to find that the papers specified an interest rate of 7.5% instead of the advertised 7.0%, but she was told that the rates had gone up. Because even the 7.5% was better than her current interest rate, she decided to proceed with the mortgage application and signed the necessary documents. At that point, Jeter asked her additional questions about the property, and expressed concern over a second- floor kitchen that had been installed before Johnson bought the house. Without elaborating, Jeter said the kitchen violated zoning ordinances, but gave no indication that the kitchen would affect Johnson's loan application.

About two weeks later, Johnson received a form stating that her mortgage application had been denied because of "Unacceptable Property." Johnson, who had an excellent credit rating, was surprised by the rejection. When Johnson asked Jeter why her application was rejected, he said it was because of the second-floor kitchen. Three months later, Johnson applied for a mortgage refinance with another company, Fleet Mortgage. She obtained a 15-year mortgage at 7.5% interest without difficulty. Because the amount financed was slightly different, however, the actual percentage rate was somewhat higher than it would have been under the Liberty terms. A financial expert later testified that the Fleet mortgage cost Johnson $3,456.46 more over the term of the mortgage than the Liberty mortgage would have.

After she obtained the mortgage from Fleet, Johnson contacted the Leadership Council for Metropolitan Open Communities, a not-for-profit organization that combats discrimination in housing and related lending practices. After the Leadership Council conducted an investigation, the Council and Johnson filed suit against Liberty and Kakvand on March 15, 1995, alleging violations of federal fair housing and lending laws, and the Illinois consumer fraud law.¹ Liberty and Kakvand never responded to the complaint, and the clerk of court entered a default against them on June 20, 1995. They made no move to vacate the default. The plaintiffs then served the defendants with discovery requests due in September 1995 seeking information, documents and reasoning related to the denial of Johnson's loan application. Liberty and Kakvand failed to respond until five months later, when they produced a response that the court termed "woefully inadequate." In particular, the defendants claimed that they were unable to produce Johnson's loan file, which contained a number of documents necessary to the plaintiffs' case. On March 21, 1996, the district court granted the plaintiffs' motion to compel and ordered the defendants to produce Johnson's loan file and to respond fully to all discovery requests by April 5, 1996. After the defendants failed to comply with this order, the plaintiffs moved for sanctions. The court postponed the hearing on the motion for sanctions four times after Kakvand appeared without an attorney on the first three scheduled dates and appeared with an attorney not admitted to the federal bar of the Northern District of Illinois on the fourth scheduled date, May 30, 1996. Finally, on May 31, when Kakvand once again failed to secure proper counsel, the district court admitted the defendants' non-admitted attorney to avoid further delay. At the hearing the plaintiffs established that the defendants had Johnson's loan file in their possession at the time the complaint was filed. The district court admonished Kakvand for his "total disregard" of court process. The court deferred ruling on the motion for sanctions, directed the parties to "get to the bottom" of the loan file's disappearance and ordered Kakvand to cooperate with all future discovery.

In the meantime, the plaintiffs moved for a default judgment, and on June 10, 1996, the district court granted the motion and entered a default judgment against Liberty and Kakvand. The district court found that the defendants discriminated against Johnson and awarded the plaintiffs actual and punitive damages to be determined at a later hearing. The district court also awarded reasonable attorneys' fees and other court costs. Additionally, the court granted the equitable relief that the plaintiffs had requested, requiring the defendants to:

adopt a uniform loan application and develop, institute and apply a uniform procedure for handling loan inquiries which shall include uniform criteria relating to the income, credit, credit history, family size and any other relevant criteria for loan applicants;

conduct or participate in regularly held educational programs designed, approved and/or instituted by the Leadership Council to inform all of their sales and loan application personnel, supervisors, managers, agents and employees of their duties under the Equal Credit Opportunity Act and the Fair Housing Act;

[m]aintain for biannual inspection by the Leadership Council for five (5) years a record of each loan application submitted during the period, including (a) date the loan application was submitted and the date it was approved, denied or otherwise disposed of, (b) copies of all paperwork generated by the action taken by each of the defendants or their agents or employees on each such application, including but not limited to, the credit report received on the applicant, property appraisal, and any notes of the Defendants, their employees or agents concerning the acceptability for a loan of every such applicant, and (c) a separately maintained list of the race of each loan applicant;

[i]nclude in all loan applications, a clause stating as follows: "The Civil Rights Laws of the United States prohibiting lending discrimination on basis [sic] of race, color, religion, sex, handicap, age, familial or marital status, national origin, or sexual orientation shall be compiled [sic] with in processing this application, and all parties shall deal in a free and open manner according to said laws;"

include in all advertisements other than a classified the logo "Equal Opportunity Lender," and place a total of at least 20% of any such advertisements in media in areas where minority residents constitute a substantial portion of the population, a listing of such recommended media to be supplied by the Leadership Council;

maintain for inspection by the Leadership Council copies of all sales advertisements placed by each of the Defendants or their employees or agents, including transcripts of any and all radio and television advertisements;

actively recruit and hire minority employees on the same basis as white persons, and assign duties and location of work to such employees and agents without regard to race, color or national origin, and immediately notify the Leadership Council in writing of any...