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May 21, 1969


The opinion of the court was delivered by: Will, District Judge.


Plaintiffs, suing as a class, seek relief with respect to contracts for the sale of used residential property in the City of Chicago. Their complaint contains five counts. The first alleges violation of the Civil Rights Act of 1866, 42 U.S.C. § 1981, 1982, 1983, 1985(3), and of the Thirteenth and Fourteenth Amendments of the Constitution of the United States. Counts two and three allege, respectively, violations of the federal antitrust laws and of the antitrust laws of the State of Illinois. Count four of the complaint alleges violation of the federal securities laws. Count five alleges violation of the Illinois common law regarding fraud, usury and unconscionable contracts.

This Court has previously determined that under Rule 23 of the Federal Rules of Civil Procedure, plaintiffs can maintain this action as a class action; and the Court has defined the plaintiff class, subject to future revision and refinement, to be composed of negroes who, since January 1, 1952, have entered into installment contracts for the purchase of used residential real estate in the City of Chicago.*fn1 The determination that a class action is appropriate was based on the recognition that the common questions of law and fact "predominate" over the individual questions. The essence of this complaint is that violations of law resulted from defendants' concerted exploitation of a condition of de facto racial segregation existing in the City of Chicago. Thus, the Court found that common questions of law and fact "predominate" within the terms of Rule 23 because it is alleged that the illegal advantage secured under any one contract depended on, was complemented by, and resulted from a concert and pattern of discriminatory activity including other similar contracts.

The Motions to Dismiss

By way of motions to dismiss each and every count of the complaint, defendants have now challenged the sufficiency of the allegations.

Before proceeding with the required determination, it should be noted at the outset that when considering a motion to dismiss, a district court must consider all the allegations of fact contained in the complaint and it is uniformly recognized that when a court is making this determination, the complaint must be liberally construed.*fn2

         Count I — The Civil Rights Act of 1866, and the
              Thirteenth and Fourteenth Amendments

The First count of the complaint relates essentially to the allegations, here taken as admitted for purposes of the motions to dismiss, that defendants exploited a system of de facto racial segregation that existed in the City of Chicago, and that by taking advantage of the scarcity of housing for negroes in the City of Chicago, defendants have secured unlawful advantage in the contracts executed by plaintiffs. As described in the complaint, the scheme of exploitation often included obtaining purchase money mortgages based on false and excessive appraisals of used residential property. The essence of the scheme is alleged to have been the purchase of residential properties from white homeowners and the resale, often in the nature of quick "turn-around" transactions, at greatly inflated prices to negro purchasers, who were disadvantaged by the system of de facto segregation and the resulting shortage of housing for negroes in Chicago. The terms of the contracts, especially the price, are alleged to represent unlawful profit gained through this pattern of exploitation.

The complaint also alleges in Count I a separate aspect of discriminatory activity. It alleges that some defendants amplified and fostered the de facto segregation on which the contracts depended. The complaint asserts that some of the defendants engaged in what is popularly known as "blockbusting," that some of the defendants stimulated and preyed on racial bigotry and fear by initiating and encouraging rumors that negroes were about to move into a given area, that all non-negroes would leave, and that the market values of properties would descend to "panic prices" with residence in the area becoming undesirable and unsafe for non-negroes. The complaint thus charges not only that defendants exploited the existing condition of de facto segregation, but that by prompting and encouraging a stampede of white sellers, some defendants extended and developed the underlying inequity of segregation that was the breeding ground for their discriminatory profit.

Section 1982 of the Civil Rights Act of 1866 provides that:

    All citizens of the United States shall have
  the same right, in every State and Territory, as
  is enjoyed by white citizens thereof to inherit,
  purchase, lease, sell, hold, and convey real and
  personal property.

In Jones v. Alfred H. Mayer Co., 392 U.S. 409, 88 S.Ct. 2186, 20 L.Ed.2d 1189 (1968), the Supreme Court of the United States declared the constitutionality and determined the scope of Section 1982. Beginning its opinion with the sum and substance of its determination, the Court stated,

  We hold that § 1982 bars all racial discrimination,
  private as well as public, in the sale or rental of
  property, and that the statute, thus construed, is
  a valid exercise of the power of Congress to
  enforce the Thirteenth Amendment. Id. at 413, 88
  S.Ct. at 2189.

The manner of discrimination specifically involved in Jones was the refusal to sell a home to an individual solely on the ground of the individual's race. In the instant case, the discrimination alleged is the sale of used residential property to negroes at higher prices and on more burdensome terms than similar property is sold to whites. Defendants contend that this difference in fact is a difference in kind under the law, that the Supreme Court's conclusion as to the import of Section 1982 is therefore not applicable to this case.

But the language and logic of Jones and the constitutional application that the Supreme Court regarded as the source of the Civil Rights Act of 1866 must be equally applicable to the discrimination alleged in this case. The Court found that the legislative history of the 1866 Act demonstrated the Congressional intent to ensure that the former slaves could participate fully in a national economy. It was the Court's conclusion that the existence of a black market distinct from a white market was the de facto vestige of what the Congress in 1866 intended to abolish as a critical means of making the black man a free man. The conviction recognized was that the obliteration of the social system where one man was the slave of another required as a fundamental matter that our economy be undifferentiated as to the race of a man. The Court thus understood Section 1982 as implementing the Thirteenth Amendment "to assure that a dollar in the hands of a Negro will purchase the same thing as a dollar in the hands of a white man." Id. at 443, 88 S.Ct. at 2205.

The Court did point out that § 1982 was limited to activity directly covered by the express terms of the Section. The Court thus stated, "at the outset, it is important to make clear precisely what this case does not involve," and went on to say that § 1982 "does not deal specifically with discrimination in the provision of services or facilities in connection with the sale or rental of a dwelling. * * * It does not refer explicitly to discrimination in financing arrangements or in the provision of brokerage services." Id. at 413, 88 S.Ct. at 2189. Of course, the alleged blockbusting and discriminatory lending in the instant case do not fall within the express terms of § 1982. However, the basic claim in this lawsuit clearly does. The basic activity is the purchase of of property. Blockbusting and discriminatory lending are alleged to be additional activities, part and parcel of the alleged conspiracy, which extended the scope and impact of the allegedly discriminatory sale and purchase.

Defendants in terrorem point to what they suppose to be the incredible consequences of a holding that Section 1982 bars the sale of residential property to negroes at a higher price because of their race. Defendants contend that this holding would mean that "every non-white citizen has a cause of action maintainable in Federal Court to either rescind or reform each and every transaction involving a purchase or leasing of either real or personal property by the simple allegation that he was charged more than a white person would have been charged or that he received less favorable terms and conditions than would have been given to a white person."

For purposes of a motion to dismiss, and considering that any such allegation would be subject, as any allegation, to the test of proof on trial, defendants are correct. Moreover, the converse is also true. Every white citizen may allege a cause of action on the ground that he was charged more or received less favorable terms than would have been given to a black person. The Supreme Court noted that the defendant in Jones similarly pointed to "the revolutionary implications of so literal a reading of § 1982." Id. at 422, 88 S.Ct. at 2194. The Supreme Court responded by stating, "our examination of the relevant history, however, persuades us that Congress meant exactly what it said." Id. at 422, 88 S.Ct. at 2194.

What was true in Jones is true here also — that defendants call "revolutionary" what is simply a denial of their assumption that there is a necessary sanctity in the status quo. Defendants present the discredited claim that it is necessarily right for a businessman to secure profit wherever profit is available, arguing specifically with respect to this case that they did not create the system of de facto segregation which was the condition for the alleged discriminatory profit. But the law in the United States has grown to define certain economic bounds and ethical limits of business enterprise. Developed areas of the law such as are invoked under the fraud and antitrust counts of this complaint are characteristic examples. So we are hearing an old and obsolete lament. For it is now understood that under § 1982 as interpreted in Jones v. Alfred H. Mayer Co. there cannot in this country be markets or profits based on the color of a man's skin.

Defendants also suggest that this case cannot involve "actual" discrimination, but only "hypothetical" discrimination. Their notion is that because the complaint does not state that defendants ever made sales of similar property to whites as they sold to plaintiffs, the possibility of discrimination somehow disappears.

We first point out what should be obvious — that allegations are not "hypotheticals." The claim that defendants sold to negroes at a higher price than similar property would be sold to whites will be subject to proof on trial. Second, and most important, defendants' position elaborated is that if property is sold to a negro above what can be demonstrated to be the usual market price, there can be no discrimination unless the same seller actually sells to whites at a lower price. It should be clear that in law this result would be obnoxious. In logic, it is ridiculous. It would mean that the 1866 Civil Rights Act, which was created to be an instrument for the abolition of discrimination, allows an injustice so long as it is visited exclusively on negroes.

In sum, then, there is no reason to distinguish a refusal to sell on the ground of race and a sale on discriminatory prices and terms. Count I of this complaint states a claim under Section 1982 of the Civil Rights Act of 1866 as understood in Jones v. Alfred H. Mayer Co., and the motions to dismiss must be denied with respect to Count I of the complaint. Because the motion is thus denied, we need not reach the question of whether the complaint states a claim under the other grounds asserted in Count I.

Count II — The Federal Antitrust Laws

In Count II of the complaint, plaintiffs allege that defendants have violated Section 1 of the Sherman Act, 15 U.S.C. § 1, through the pattern of activity alleged in Count I; and plaintiffs add allegations that there has been continuing action and agreement by defendants and their co-conspirators to fix the prices on the sale of real estate to plaintiffs at approximately $5,000 to $15,000 per unit above the fair market value of each unit. The particularization of the antitrust violation also includes allegations that defendants and their co-conspirators arranged the elimination of price competition in the sale and financing of real estate properties and in the discounting of installment contracts entered into by plaintiffs.

There is no question, and defendants do not dispute, that the activities alleged can violate the antitrust laws if the scope of such activities is sufficient to bring them within the ambit of federal regulation. The only substantial issue raised by the motion to dismiss Count II of the complaint is, therefore, whether the combination and conspiracy complained of is alleged to be "in restraint of interstate commerce" as the nature of interstate restraint has been understood in the application of the federal antitrust laws.

It is established under the decided cases that, depending upon the particular circumstances, a business activity conducted solely intrastate may result in an interstate restraint that is violative of the federal antitrust laws. The Supreme Court recognized this manner of violation in Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219, 68 S.Ct. 996, 92 L.Ed. 1328 (1948) where the Court generalized the test to be applied, stating,

  For, given a restraint of the type forbidden by
  the Act, though arising in the course of
  intrastate or local activities, and a showing of
  actual or threatened effect upon interstate
  commerce, the vital question becomes whether the
  effect is sufficiently substantial and adverse to
  Congress' paramount policy declared in the Act's
  terms to constitute a forbidden consequence. If
  so, the restraint must fall, and the injuries it
  inflicts upon others become remediable under the
  Act's prescribed methods, including the treble
  damage provision. Id. at 234, 68 S.Ct. at 1005.

Or again, in United States v. Women's Sportswear Manufacturers Ass'n, 336 U.S. 460, 69 S.Ct. 714, 93 L.Ed. 805 (1949), the Court said,

  The source of the restraint may be intrastate, as
  the making of a contract or combination usually
  is; the application of the restraint may be
  intrastate, as it often is; but neither matters
  if the necessary effect is to stifle or restrain
  commerce among the states. If it is interstate
  commerce that feels the pinch, it does not ...

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