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Swanson v. Citibank, N.A., No. 10-1122 (7th Cir. July 30, 2010)

| Aug 1, 2010 | Daily Developments in EEO Law |

There Seventh Circuit heavyweights battle over the meaning of Iqbal and Twombly in a straight discrimination pleading, here a case filed under the Fair Housing Act. Judge Diane Wood – writing for herself and Chief Judge Frank Easterbrook – find the plaintiff’s modest allegations to be enough to pass Rule 8, but Judge Richard Posner in dissent argues that the district court properly dismissed them.

Swanson v. Citibank, N.A., No. 10-1122 (7th Cir. July 30, 2010): Plaintiff filed suit against Citibank, Andre Lanier, and Lanier’s employer, PCI Appraisal, claiming that the defendants racially discriminated against her (as an African-American) when she applied for a home-equity loan.  Citibank (also sued under the Equal Credit Opportunity Act, a claim which the panel unanimously agreed was properly dismissed) supposedly imposed unusual obstacles to Swanson’s applying for the loan (such as requiring her husband to physicianly appear at the bank for one of the appointments), and the other defendants Swanson accused of deliberately undervaluing her home to give Citibank cover to duck out of the deal. The district court dismissed the entire case for failure to state a claim (Fed. R. Civ. P. 12(b)(6)).

The panel – 2 to 1 – reverses the dismissal of the FHA claims. The majority opinion sets the table for the legal question of what level of detail and pre-filing investigation must a plaintiff undertake to avoid dismissal on the pleadings? The panel majority states:

“It is by now well established that a plaintiff must do better than putting a few words on paper that, in the hands of an imaginative reader, might suggest that something has happened to her that might be redressed by the law. . . . The question with which courts are still struggling
is how much higher the Supreme Court meant to set the bar, when it decided not only [Bell Atlantic Corp. v.] Twombly, [550 U.S. 544, 563 (2007)], but also Erickson v. Pardus, 551 U.S. 89 (2007), and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009). This not an easy question to answer, as the thoughtful dissent from this opinion demonstrates. On the one hand, the Supreme Court has adopted a ‘plausibility’ standard, but on the other hand, it has insisted that it is not requiring fact pleading, nor is it adopting a single pleading standard to replace Rule 8, Rule 9, and specialized regimes like the one in the Private Securities Litigation Reform Act(‘PSLRA’), 15 U.S.C. § 78u-4(b)(2).”

The majority states that, so far as Rule 8 remains the law, a complaint needed use magic words or special facts to survive dismissal. Iqbal et al. does call for nuance, though: “[T]he Court has called for more careful attention to be given to several key questions: what, exactly, does it take to give the opposing party ‘fair notice’; how much detail realistically can be given, and should be given, about the nature and basis or grounds of the claim; and in what way is the pleader expected to signal the type of litigation that is being put before the court?”

The Seventh Circuit proposes this standard to guide interpretation of Iqbal:

“As we understand it, the Court is saying instead that the plaintiff must give enough details about the subject-matter of the case to present a story that holds together. In other words, the court will ask itself could these things have happened, not did they happen. For cases governed only by Rule 8, it is not necessary to stack up inferences side by side and allow the case to go forward only if the plaintiff’s inferences seem more compelling than the opposing inferences.”

It then applies that standard to a hypothetical Title VII complaint:

“A plaintiff who believes that she has been passed over for a promotion because of her sex will be able to plead that she was employed by Company X, that a promotion was offered, that she applied and was qualified for it, and that the job went to someone else. That is an entirely plausible scenario, whether or not it describes what ‘really’ went on in this plaintiff’s case. A more complex case involving financial derivatives, or tax fraud that the parties tried hard to conceal, or antitrust violations, will require more detail, both to give the opposing party notice of what the case is all about and to show how, in the plaintiff’s mind at least, the dots should be connected.”

And then the panel applies it to the core FHA claim against Citibank:

“We begin with Citibank. On appeal, Swanson challenges only the dismissal of her Fair Housing Act and fraud claims. The Fair Housing Act prohibits businesses engaged in residential real estate transactions, including ‘[t]he making . . . of loans or providing other financial assistance . . . secured by residential real estate,’ from discriminating against any person on account of race. 42 U.S.C. § 3605(a), (b)(1)(B). Swanson’s complaint identifies the type of discrimination that she thinks occurs (racial), by whom (Citibank, through [loan officer] Skertich, the manager, and the outside appraisers it used), and when (in connection with her effort in early 2009 to obtain a home-equity loan). This all that she needed to put in the complaint.”

Judge Posner finds, by contrast, that Iqbal required the plaintiff to do more to raise an inference of discrimination:

“There is no allegation that the plaintiff in this case was competing with a white person for a loan. It was the low appraisal of her home that killed her chances for the $50,000 loan that she was seeking. The appraiser thought her home worth only $170,000, and she already owed $146,000 on it (a first mortgage of $121,000 and a home-equity loan of $25,000). A further loan of $50,000 would thus have been undersecured. We must assume that the appraisal was a mistake, and the house worth considerably more, as she alleges. But errors in appraising a house are common because ‘real estate appraisal is not an exact science,’ Latimore v. Citibank Federal Savings Bank, supra, 151 F.3d at 715-common enough to have created a market for ‘Real Estate Appraisers Errors & Omissions’ insurance policies. See, e.g., OREP (Organization of Real Estate Professionals), ‘E&O Insurance,’ www.orep.org/appraisers-e&o.htm (visited July 11, 2010). The Supreme Court would consider error the plausible inference in this case, rather than discrimination, for it said in Iqbal that ‘as between that ‘obvious alternative explanation’ for the [injury of which the plaintiff is complaining] and the purposeful, invidious discrimination [the plaintiff] asks us to infer, discrimination is not a plausible conclusion.’ Ashcroft v. Iqbal, supra, 129 S. Ct. at 1951-52, quoting Twombly, 550 U.S. at 567.”

The dissent raises the alarm of runaway discovery, and suggests that the conventional expedient of turning pre-trial matters over to a federal magistrate judge is not a meaningful cushion:  “because the magistrate judge to whom a case is delegated for discovery only is not responsible for the trial or the decision and can have only an imperfect sense of how widely the district judge would want the factual inquiry in the case to roam to enable him to decide it, the magistrate judge is likely to err on the permissive side.” 

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