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The U.S. Supreme Court will have the opportunity to decide just how far the protections of the Equal Credit Opportunity Act go when they hear the case in November of two Missouri women who allege they were required by their bank to guarantee business loans taken out by their husbands.
“The ECOA prohibits a bank from automatically requiring a spouse to guarantee [a loan],” said attorney for the petitioners John M. Duggan of Duggan Shadwick Doerr & Kurlbaum in Overland Park, Kansas.
Valerie Hawkins and Janice Patterson signed 16 guarantees over several years to secure the loans for their husbands’ real estate development in Peculiar, a city south of Kansas City. When the group of four loans defaulted early in 2012, Community Bank of Raymore attempted to collect from the wives.
The petitioners alleged in their briefs that the bank that issued the loan, CBR, “engaged in marital status discrimination,” according to the petition for writ filed in the Supreme Court.
To prove that point, the petitioners have to show that the U.S. statute designed originally to protect women from discrimination based on their marital status when they apply for credit extends those protections to women when they are guarantors of loans as well.
In 2013, U.S. District Judge Dean Whipple of the Western District of Missouri acknowledged when granting summary judgment that his court ultimately decided the issue on a legal issue, not a factual one.
“[T]his Court holds that a guarantor is not an ‘applicant’ as defined by the ECOA,” Whipple wrote.
That meant that the ECOA did not grant standing for the wives. In August, the 8th U.S. Circuit Court of Appeals agreed, saying the statute could not be read so broadly.
The 8th Circuit used the so-called Chevron framework to reach their conclusion. Based on the 1984 decision in Chevron v. Natural Resources Defense Council, the two-step test had the court address the intent of Congress in building the ECOA statute before moving forward to see if there is a reasonable interpretation of the statute that could be applied to the issue at hand, in this case whether Hawkins would be considered an applicant.
“While a guarantor no doubt desires for a lender to extend credit to a borrower, it does not follow from the execution of a guaranty that a guarantor has requested credit or otherwise been involved in applying for credit,” Judge Raymond Gruender wrote in his opinion. “Thus, a guarantor does not request credit and therefore cannot qualify as an applicant under the unambiguous text of the ECOA.”
However, this put the court at odds with a 6th Circuit ruling, which found the statute ambiguous “because it could be read to include third parties who do not initiate an application for credit, and who do not seek credit for themselves — a category that includes guarantors.”
The inconsistency in the courts allowed the Supreme Court to take up the issue.
And while the Supreme Court will have the opportunity to decide the issue of law, they also might be able to dispose of the case based on an issue of fact not taken up by prior courts. In a brief in opposition to the Supreme Court, an attorney for CBR disputed the allegation that the women were required to sign guarantees. Instead, seeing that they had a vested interest in the venture succeeding, they offered to guarantee over $2 million in loans to finance their husbands’ real estate development, the bank alleged.
“Petitioners had no qualms in making these representations to induce CBR to make the loans, now that they no longer find them convenient, Petitioners seek to cavalierly toss their solemn, written representations aside,” Greer Long of Lathrop & Gage in Kansas City wrote in the brief. Long declined to comment.
The case, Hawkins v. Community Bank of Raymore, 13-3065, is scheduled to be heard Nov. 5.
