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Jorman v. Veterans Administration

decided: September 21, 1987.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 77 C 581, James F. Holderman, Judge.

Bauer, Chief Judge, Cudahy and Flaum, Circuit Judges.

Author: Bauer

BAUER, Chief Judge

More than thirty years since Brown v. Bd. of Education, 347 U.S. 483, 98 L. Ed. 873, 74 S. Ct. 686 (1954) mandated integrated schooling, integrated housing is still a frustratingly elusive goal. Chicago remains a city largely divided along racial lines. In the 1970's, a segregated all-white Chicago neighborhood became a segregated all-black neighborhood. The causes behind this disturbing phenomenon, coined "resegregation," are numerous and complex. This class action was initiated in 1977 by residents of that neighborhood, charging that the Department of Housing and Urban Development through the Federal Housing Administration ("FHA") and the Veterans Administration ("VA") had failed to adequately monitor the effects of their respective home-loan guarantee programs, paving the way for resegregation. After the FHA was dismissed without prejudice, the only remaining defendants were the VA and its administrator. The district court, in a thorough and well-reasoned order, found that the plaintiffs lacked standing to sue because their injuries were not "fairly traceable" to defendants' failure to monitor its program; we affirm.


Marquette Park is located on the southwest side of Chicago. In the 1970's, a portion of Marquette Park (Area A), experienced "tumultuous" white flight and subsequent resegregation. See Jorman v. Veterans Administration, 579 F. Supp. 1407, 1411 (N.D. Ill. 1984). For the purposes of this litigation, Area A is a roughly 36-block area, bordered by Western Avenue; the remainder of Marquette Park has been designated Area B.*fn1 In 1975, the first black families began to move into Area A. Between 1975 and 1978, there was a flurry of real estate activity in the area, including houses sold with the assistance of mortgages insured by the VA and FHA. During this time, ninety percent of the homes in Area A changed hands. Ninety-six percent of the houses sold were sold to black purchasers. Before 1975, Area A had a five percent annual turnover rate, in 1976, Area A had a thirty-seven percent turnover rate. By 1980, Area A had become a segregated all-black community. Area B was approximately ninety-nine percent white until 1980. Since then, some 15-18 black families have moved into Area B.

The class action, as filed, had twenty-one members in the plaintiff class. Seventeen members have since been dismissed. The remaining four class members are Jannis Moore Willaby, Mary Ceil McManus, Leonard Judickas and the Southwest Community Congress ("SCC"). Willaby, McManus and Judickas are all homeowners in Marquette Park (Willaby in Area A and McManus and Judickas in Area B); the Southwest Community Congress is a non-profit neighborhood organization. Plaintiffs filed their complaint on February 18, 1977, charging that neither the VA nor the FHA adequately monitored and regulated the effects of their home loan mortgage programs on neighborhood racial composition. In particular, plaintiffs complained about the agencies' failure to institute a prepurchase counseling program designed to advise prospective black buyers of alternative housing in neighborhoods without a potential for resegregation. Plaintiffs contended that the agencies should have had a method for collecting and analyzing data on particular neighborhoods. Plaintiffs argue that a prepurchase counseling plan, guided by this data, would have decreased blacks' demand for housing in areas with a potential for resegregation and would have prevented white flight. There is no dispute that neither agency had any such program, nor any method for monitoring the changing racial composition in a given area.

In addition, plaintiffs challenged the agencies' practice of pre-approving mortgages (termed "John Doe" appraisals in the VA and "conditional commitments" in the FHA), the VA's practice of encouraging use of their loan programs in the inner-city, and the procedures used by both agencies to appraise the value of homes. Plaintiffs charged that the failure to monitor community racial composition and adjust their lending practices accordingly contravened the agencies' statutory duty under 42 U.S.C. ยง 3608(d) to administer housing programs "in a manner affirmatively to further the purposes" of Title VIII of the 1968 Civil Rights Act. A later complaint also charged a violation of the agencies' duties imposed by 42 U.S.C. 1441, which provides that "agencies of the Federal Government having powers, functions or duties with respect to housing, shall exercise their powers, functions and duties . . . in such manner as will encourage and assist . . . the development of well-planned, integrated, residential neighborhoods. . . ."

In a second count, the plaintiffs charged that the VA and the FHA knowingly condoned various discriminatory practices. Count II was dismissed on January 19, 1982, for failure to allege any facts to support the allegations. The FHA was dismissed without prejudice on October 14, 1977 after agreeing to institute a prepurchase counseling program designed to promote housing integration. Throughout the litigation, plaintiffs sought to compel the agencies to change their practices: to case preapproving mortgages and to institute a prepurchase counseling program. In addition, plaintiffs now seek to have the VA offer current residents of Area A alternative housing in nonsegregated communities.*fn2

The Veterans Administration home loan guaranty program was established to help ex-servicemen purchase homes. Under the program, the VA guarantees sixty percent of the loan up to a ceiling of $27,500 (currently). As a result, private lenders are more willing to finance a mortgage than they otherwise might be. In the late 1960's, the VA encountered pressure from civil rights groups to encourage the use of their loan program by minorities in the inner city. Thus, in 1968, the VA ceased excluding inner-city areas from those in which it would guarantee mortgages for qualified veterans.

Plaintiffs' primary expert, Dr. Calvin Bradford, a senior fellow at the Hubert Humphrey Institute of Public Affairs at the University of Minnesota, testified that the rapid resegregation of Area A was caused by the infusion of FHA and VA lending in the area. This conclusion was corroborated by plaintiffs' other expert who testified that a financing mechanism that allows for rapid turnover is crucial for resegregation.

Defendants' expert, Dr. Brian Berry, Dean of the School of Urban and Public Affairs at Carnegie-Mellon University, testified that rather than causing resegregation, the influx of government-assisted loans was merely a symptom that tends to accompany resegregation.*fn3 Dr. Berry attributed the resegregation phenomenon to the fears of many white homeowners that their property values would decline if the level of integration surpassed a certain point. In addition, Dr. Berry pointed to the fears of many white homeowners that living in an integrated neighborhood would result in a loss of "status". According to Dr. Berry's research, white homeowners would tolerate only a 20 % level of minorities before these fears would surface.

The district court largely credited defendant's expert over plaintiffs' and found that plaintiffs lacked standing to sue because the injuries suffered were note "fairly traceable" to VA practices and because plaintiffs could not show that their injuries were likely to be redressed by a favorable decision. In doing so, the district court noted that "to conclude [that VA practices caused the resegregation of Area A] would require the Court to engage in the speculative leaps of faith prohibited by the Supreme Court. . . ." (Mem. Op. at 37). The Court noted that resegregation fundamentally was caused by blacks' desires to find better housing in the city, coupled with whites' intolerance of a certain level of minority population. The court found that the defendants' expert, Dr. Berry, presented a more plausible explanation of increased black demand and white flight than did plaintiffs' experts and that the increased availability of government-assisted mortgages was a symptom, rather than a cause, of resegregation. Accepting Dr. Berry's findings that white homeowners tolerate only a 20 % minority level, the court noted that even in the absence of any government-assisted financing, Area A would have become at least 60 % black.*fn4

As to specific practices of the VA, the court found insufficient evidence from which to conclude that John Doe appraisals played a significant role in the resegregation process. It found further that the effects of a prepurchase counseling program could not be measured since the plaintiffs had failed to show that conventional mortgages were unavailable at the time. The court therefore concluded that resegregation would have occurred "at almost the same pace" even if no VA-guaranteed loans had been extended during the 1970's. The district court also found that plaintiffs' injuries could not be redressed by the court, reasoning that instituting a prepurchase ...

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