The opinion of the court was delivered by: Elaine E. Bucklo, U.S. District Judge.
MEMORANDUM OPINION AND ORDER
Ellis Bagley is an African-American who has worked in the insurance
industry since 1989. He has a J.D., an M.B.A., and an L.L.M. from
Northwestern University. In 1996, he made a business proposal to the
defendants, collectively referred to as the Kemper Group ("Kemper"), to
create a "managing general agency" to underwrite contract surety bonds
and offer a companion package insurance policy directed towards small law
firms, to be called the "Barrister Protection Plan." During discussions a
Kemper bond underwriting officer suggested certain modifications. Under
the terms of Mr. Bagley's final proposal, incorporating those changes,
the plan provided that Kemper would lend $600,000 to a firm that Bagley
would establish and act as the managing general agent.
In 1997, Kemper rejected the plan, giving as its reasons that: (1) it did
not want to set up a competitive operation to its existing department
that marketed to affinity groups, (2) it had a program under design for
small law firms, and (3) it was not interested in providing certain kinds
of professional liability coverage to law firms because of poor loss
history. Mr. Bagley sued under the Equal Credit Opportunity Act,
15 U.S.C. § 1691 et seq. ("ECOA"), 42 U.S.C. § 1981, and several
state law causes of action, alleging that Kemper denied him a loan and an
opportunity to contract because of his race, and stole his business plan.
Kemper moves to dismiss all counts of the complaint, and I deny the
motion in part and grant it in part.
A motion to dismiss is to be granted only if it appears that the
plaintiff could prove no facts that would entitle him to relief. Gutierrez
v. Peters, 111 F.3d 1364, 1368 (7th Cir. 1997) In deciding such a
motion, I accept as true all well-pleaded allegations of the complaint
and reasonable inferences that may be drawn from them. Sapperstein v.
Hager, 188 F.3d 852, 855 (7th Cir. 1999). The issue is not whether a
plaintiff will ultimately prevail but whether he is entitled to offer
evidence to support the claims. "It may appear on the face of the
pleadings that a recovery is very remote and unlikely, but that is not the
test." Id. (internal citation omitted).
The Equal Credit Opportunity Act makes it "unlawful for any creditor to
discriminate against any applicant, with respect to any aspect of a
credit transaction . . ., on the basis of race [or] color."
15 U.S.C. § 1691 (a)(1). Kemper argues that the ECOA claim must fail
because (1) the Act does not apply to a proposed joint business venture,
but only to consumer applicants for credit to financial institutions; (2)
Kemper is not a "creditor" within the meaning of the Act, and (3) Mr.
Bagley is not an "applicant."
With respect to (2), Kemper argues that it is not a creditor because it
is not regularly engaged in the business of providing credit. See
Latimore v. Citibank Federal Savings Bank, 151 F.3d 712, 716 (7th Cir.
1998) (citing 12 C.F.R. S 202.2(1) (A creditor is "a person who, in the
ordinary course of business, regularly participates in the decision of
whether or not to extend credit.")). Mr. Bagley alleges that Kemper has
lent $1 billion to one real estate developer, $35 million to a Chicago
construction firm, has held hundreds of millions of dollars in
residential mortgages, and has lent scores of millions of dollars to
venture capitalists and insurance agents. Kemper disputes these
allegations, but I must assume that they are true for the purposes of
this motion, and they are sufficient to make Kemper a creditor within the
meaning of the statute.
Finally, as to (3), Kemper's argument that Mr. Bagley was not an
"applicant" because he sought the money for his prospective firm, not
himself, is not supported by case law. If this were the law, a racist
lender could refuse to lend to a business on the stated grounds that it
was owned by an African-American applicant, and avoid liability. But the
statute applies to commercial loans, and a creditor that refuses to lend
to a business because of the race of the applicant, e.g., a prospective
partner or incorporator, would be in violation. Mr. Bagley has stated a
claim for a violation of ECOA.
Section 1981 protects the right of all persons in the United States to
"make and enforce contracts." Kemper argues that Mr. Bagley has failed to
show that the dispute here concerned "the actual loss of a contract
interest, not merely the possible loss of future contract opportunities."
Morris v. Office Max, 89 F.3d 411, 414-15 (7th Cir. 1996). Kemper says
that the rejection of a proposed business plan is only a possible loss of
a future contract opportunity. In Morris, however, the plaintiffs "never
sought to enter into a contractual relationship with [the defendant],"
Id. at 414, but that is not the case here. A defendant cannot avoid
§ 1981 liability by refusing to contract with members of racial
minorities who seek to contract with him, then arguing that there were no
"actual loss of contract interests" involved. Kemper argues that the plan
was too amorphous to be a contract proposal, but that does not seem to
have been a criticism it had at the time, and as Mr. Bagley denies it was
amorphous, I must accept his allegation here.
Kemper also argues that Mr. Bagley fails to make out a prima facie case
because he failed to plead that there were similarly situated persons
outside the protected class who were treated more favorably. See Bailey
v. Northern Indiana Public Service Co., 910 F.2d 406, 410 (7th Cir. 1990)
(Indirect burden shifting approach applies to § 1981 claims.).
However, that showing is not required in all cases. In an employment
context, the inference of discrimination arises in single-discharge
("mini-RiF") cases where the terminated employee's duties are absorbed by
other employees not in the protected class, even without a showing that
similarly situated employees were treated better. Bellaver v. Quanex
Corp., 200 F.3d 485, 495 (7th Cir. 2000). Mr. Bagley's case may be
plausibly analogized to a single-discharge employment case if the business
opportunities he alleges it denied to him were offered to others not in
the protected class. Mr. Bagley alleges that Kemper makes large scale
loans to white-owned businesses that may be regarded as having absorbed
the opportunities he would have had, and that will suffice for the
showing in this context and for purposes of a motion to
Kemper contends, further, that if it were racist, it would not have
entered into negotiations to lend Mr. Bagley money. It asks me to apply
the "same actor inference" in a loan context. Under this theory, "where
the same person does the hiring and firing of an individual, an inference
arises that the firing did not result from an improper discriminatory
motive." Johnson v. Zema Sys. Corp, 170 F.3d 734, 744-45 (7th Cir. 1999)
(employment context). It is not clear that the inference would be
applicable in a case like this where the "same actor" did not actually
offer a job or loan that it later refused to a person in the protected
class. There are many reasons a racist lender might pretend to give
consideration to an application from an African-American, for example, to
create a paper impression that it was not engaged in discrimination. Even
if the same-actor inference were applicable, though, it is "unlikely to
be dispositive in very many cases [because the] inference is not itself
evidence of nondiscrimination. It simply provides a convenient shorthand
for cases in which a plaintiff is unable to present sufficient evidence
of discrimination." Id. at 745. I cannot, therefore, conclude as a matter
of law that merely because Kemper negotiated with Mr. Bagley that it did
not discriminate against him in making contracts.
Finally, Kemper argues that Mr. Bagley has not shown that its
nondiscriminatory reasons were pretextual. However, Kemper adequately
replies to these reasons in his complaint (admittedly an unusual place to
do it), where he alleges, first, that Kemper provided managing general
agent status to the white-owned Lou Jones Agency of Los Angeles,
California, from 1985 to 1996, so it must have been interested in
"outside" marketing affinity groups, contrary to what it told him in the
denial letter. Kemper responds, in a footnote,*fn1 that it had no such
relations in 1997, but it does not say whether that was because of the
policy stated in the rejection letter, so on a motion to dismiss I must
draw the inference in favor of Mr. Bagley and conclude that it was not.
Second, Mr. Bagley argues that it is hard to square the proffered
nondiscriminatory reasons that Kemper was not interested in setting up an
outside competitor and had its own program about ready to go with
Kemper's extensive negotiations with him. Third, Mr. Bagley alleges that
Kemper did not begin selling liability insurance to small law firms ...