Mcglawn v. Pennsylvania Human Relations
| Decision Date | 13 January 2006 |
| Citation | 891 A.2d 757 |
| Parties | Reginald McGLAWN, Petitioner v. PENNSYLVANIA HUMAN RELATIONS COMMISSION, Respondent. McGlawn & McGlawn, Petitioner v. Pennsylvania Human Relations Commission, Respondent. |
| Court | Pennsylvania Commonwealth Court |
Jeffry H. Homel, Huntingdon Valley, for petitioner.
Charles L. Nier, III, Asst. Chief Counsel, Philadelphia, for respondent.
BEFORE: McGINLEY, Judge, and COHN JUBELIRER, Judge, and SIMPSON, Judge.
OPINION BY Judge SIMPSON.
This case involves an issue of first impression: whether the Pennsylvania Human Relations Act (Act)1 extends to a mortgage broker's predatory lending activities known as "reverse redlining."2 We affirm the Commission's holding that the Act prohibits reverse redlining. However, we vacate part of the Commission's award of actual damages and remand for further proceedings.
Respondent McGlawn and McGlawn, Inc. (Broker) a state-licensed mortgage broker, and Respondent Reginald McGlawn (Reginald McGlawn) petition for review of the decision of the Pennsylvania Human Relations Commission (Commission). The decision held Respondents violated Sections 5(h)(4)(loan provision)3 and 5(h)(8)(i)(real estate transaction provision)4 of the Act by discriminating against Complainants and other similar situated persons (collectively, Complainants),5 in mortgage loan transactions, because of their race and the racial composition of their neighborhoods. The Commission's final order directed Respondents to (1) cease and desist from discriminating against African Americans because of their race; (2) pay Complainants actual damages;6 (3) pay Complainants damages for embarrassment and humiliation;7 and (4) pay a civil penalty of $25,000.00. Further, the Commission's order directed Broker to (5) provide employee training to its employees designed to educate them in their responsibility to treat clients in a non-discriminatory manner consistent with the provisions of the Act; and to (6) develop and implement a record-keeping system designed to accurately record information about Broker's charges in all mortgage transactions.8 The order also required Respondents to report the means of compliance and directed the Commission to contact the Department of Banking so that it may take such licensing action as it deemed appropriate.
Broker, a corporation which brokers mortgage loans, refinancing and insurance for its customers, was founded in 1985 by its chief officers, Reginald McGlawn, and his brother, Anthony McGlawn. Reginald McGlawn is Broker's mortgage loan specialist, and Anthony McGlawn is Broker's insurance specialist. Broker also employs other McGlawn family members.
Broker specializes in arranging sub-prime mortgage loans for its customers. The prime lending market provides credit to those considered good credit risks. The sub-prime lending market provides credit to people the financial industry considers enhanced credit risks. These people generally have a flawed credit history or a debt-to-income ratio outside the range the financial industry considers acceptable for prime credit. As discussed hereafter, sub-prime interest rates are usually two to three percentage points higher than prime rates.
In 1998-2000, Broker arranged sub-prime mortgage loans for Complainants, who own real property in Philadelphia County. Broker is an African American-owned company. Complainants are African Americans who reside in predominantly African American neighborhoods.
In April 2001, Complainant Lucrecia Taylor (Taylor) filed a verified complaint with the Commission alleging Broker unlawfully discriminated against her in the terms and conditions of a real estate-related transaction and loan of money because of her race and the racial composition of her neighborhood, African American. Specifically, Taylor alleged Broker targeted her, as an African American, for a mortgage loan transaction containing predatory and unfair terms in violation of the Act's loan and real estate transaction provisions. Significantly, Taylor stated her allegations were made not only on her own behalf, but on behalf of all other similarly situated persons affected by Broker's discriminatory practices. After the pleadings were closed, the Commission notified Taylor and Broker that probable cause existed to credit Taylor's allegations.
In August 2002, Complainant Lynn Poindexter (Poindexter) filed a like complaint against Broker on behalf of herself and all other similarly situated persons. The Commission subsequently found probable cause existed to credit Poindexter's allegations. The Commission consolidated the two cases.
Because these complaints alleged Broker committed similar discriminatory acts against other persons, the Commission sought access to Brokers loan records. Broker ignored this request. Thereafter, Broker refused to comply with a Commission subpoena requesting these documents. This Court entered an order directing Broker to produce such documents. Broker complied.
The Commission was thereafter able to identify other individuals affected by Broker's alleged discriminatory practices. Pursuant to 16 Pa.Code § 42.36(a), Commission Counsel,9 representing Complainants and the Commonwealth's interest, filed a confirmation of intention to seek relief for persons other than the named Complainants.
Several weeks later, after failed attempts to resolve the matter, hearings were held before a panel of three Commissioners. Both Complainants and Broker presented evidence.
Complainants testified and submitted exhibits, including their loan documents. Complainants also presented testimony from a Commission investigator and two experts regarding the rapid growth of the urban sub-prime lending market and the emerging problem of predatory lending targeting segregated urban areas.
In defense, Broker submitted documentary evidence and presented testimony from Reginald McGlawn and Anthony McGlawn. Broker also presented testimony from two witnesses satisfied with Broker's services.
In its decision, the Commission found Broker engaged in predatory brokering activities regarding all Complainants. Those actions resulted in unfair and predatory mortgage loans. It also found Broker engaged in an aggressive marketing plan targeting African Americans and African American neighborhoods in the Philadelphia area. Nearly all of Complainants contacted Broker in response to radio, television and newspaper advertisements.
Broker's predatory practices, the Commission noted, included arranging loans containing onerous terms such as high interest rates, pre-payment penalties, balloon payments and mandatory arbitration clauses. In addition, Broker charged Complainants high broker fees, undisclosed fees, yield spread premiums and various other additional closing costs. Broker's predatory practices also included falsification of information on loan documents, failure to disclose information regarding terms of the loan, and high pressure sales tactics.
Because there are no state appellate court decisions addressing the issue of whether reverse redlining and/or predatory lending constitutes prohibited housing discrimination under the Act, the Commission relied on several federal court decisions. Those decisions hold reverse redlining and related discriminatory practices violate the Fair Housing Act (FHA), 42 U.S.C. §§ 3601-3631.10
The seminal case prohibiting reverse redlining is Hargraves v. Capital City Mortgage Corp., 140 F.Supp.2d 7 (D.D.C. 2000). There, the United States District Court adopted a two-pronged test for discrimination under the FHA based on reverse redlining. First, the plaintiffs must establish the defendant's lending practices and loan terms were predatory and unfair. Hargraves. Second, the plaintiffs must establish that defendant intentionally targeted them because of their race or that the defendant's lending practices had a disparate impact on the basis of race. Id.
Citing Hargraves and the opinions of Complainants' experts, the Commission concluded Complainants established a prima facie reverse redlining claim against Broker under the Hargraves test. The Commission rejected Broker's arguments that (1) it did not discriminate because it did not arrange loans for non-African Americans on more preferable terms, (2) it had a legitimate business necessity for its actions, (3) it is not responsible for the terms and conditions of the loans or the disclosure of information relating to the loans, and (4) all mortgage brokers are predators.
As a result, the Commission held Respondents violated the loan provisions and the real estate transaction provisions of the Act by unlawfully discriminating against Complainants in the terms and conditions of real estate-related transactions. The Commission therefore entered the order previously described, and Respondents' petitioned this Court for review.11
Before this Court, Respondents raise three primary contentions. First, Respondents challenge the Commission's authority to implement a new cause of action for discrimination for reverse redlining under the loan provisions and real estate transaction provisions of the Act. Second, Respondents challenge support for the conclusion that Broker engaged in reverse redlining. Third, they challenge the damage award as excessive and not reasonably related to the alleged harm.
Respondents first argue the Commission lacked the jurisdiction and authority to create a cause of action for reverse redlining under the Act. They contend the Commission's authority is limited by the Act. Any doubtful powers do not exist. Respondents maintain it is the responsibility of courts, not the Commission, to recognize a new cause of action.
In response, the Commission contends this is a housing discrimination case. Section 3 of the Act recognizes an...
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