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HONORABLE v. EASY LIFE REAL ESTATE SYSTEM

June 15, 2000

RUBY HONORABLE, MACK WILLIAMS, SHIRLEY ROLLINS, STEKEEN ROLLINS, NORRIS BOSTON, MARTHA BOSTON, DONALD BROWN, SONYA BROWN, INDIVIDUALLY AND ON BEHALF OF ALL PERSONS SIMILARLY SITUATED, SOUTH AUSTIN COALITION COMMUNITY COUNCIL, MARILYN WILLIAMS, PLAINTIFFS,
V.
EASY LIFE REAL ESTATE SYSTEM, ACE REALTORS, INC., RICHARD F. NELON, AND LOUIS PRUS, DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

This case poses, most centrally, the question of what is required to make out an "exploitation" theory of liability for racial discrimination in the sale of real estate. The plaintiffs here are African-Americans who sought to buy rehabbed homes offered for sale by the defendants in or near the predominantly black Austin area on the west side of Chicago, Illinois. They claim that the defendants' selling practices violated 42 U.S.C. § 1981-82 (civil rights), and 42 U.S.C. § 3604(b) (Fair Housing Act), by taking unfair advantage of unsophisticated first time buyers in a racially discriminatory way.*fn1 The defendants move for summary judgment, and I deny the motion.

I.

During the period of the violations alleged in this case, Easy Life Real Estate System ("Easy Life") offered homes it represented to be fully rehabbed for sale to first time buyers at very low down payments. It targeted the 95% African-American community of Austin on the West side of Chicago, arranging for Federal Housing Administration ("FHA") insured loans from certain lenders. Easy Life's agents told Ruby Honorable that one home in Austin, which she eventually bought, was "the only one" she qualified for. They falsely told Shirley and Stekeena Rollins that an Austin house Easy Life was selling was really in adjacent Oak Park, and then, when that deception was discovered, that it was too late to back out of the deal, although it was not. Easy Life's agents did not allow negotiation on the price of homes. They gave the buyers the funds for their down payments, making it appear that the money was a gift from a relative. They paid off Ms. Honorable's outstanding debts. Easy Life encouraged plaintiffs to bring in family members as co-signers, and had buyers sign blank pieces of paper where an explanation for credit delinquency could be filled in later. Easy Life prevented or discouraged plaintiffs from inspecting the homes, which were very shabbily done and not properly rehabbed.

II.

A.

Under the "exploitation" theory, as the Seventh Circuit explains it, the plaintiffs argue that:

As a result of racial discrimination there existed two housing markets . . ., one for whites and another for blacks, with the supply of housing available in the black market far less than the demand. Defendants entered the black market selling homes for prices far in excess of their fair market value and far in excess of prices which whites pay for comparable homes in the white market and on more onerous terms than whites similarly situated would encounter. . . .

Clark v. Universal Builders, 501 F.2d 324, 328 (7th Cir. 1974) (Clark I). To establish "exploitation" liability, the plaintiffs must show that (1) as a result of racial segregation, dual housing markets exist, and (2) defendant sellers took advantage of this situation by demanding prices and terms unreasonably in excess of prices and terms available to white citizens for comparable housing. Clark v. Universal Builders, Inc., 706 F.2d 204, 206 (7th Cir. 1983) (Clark II). Here (1) is not in dispute. Rather, the defendants argue that (2) is not true, that they could not have done what the plaintiffs allege because they lacked market power.

The defendants' claim that exploitation requires market power is derived from its reading of Clark II, where the Seventh Circuit held that this theory of liability "does not eliminate questions about how a business can set its prices above a reasonable level. In the absence of collusion, or a situation of a business having sufficient market power of its own, it is difficult to understand how a business could retain its market share against non-exploiting competitors." 706 F.2d at 212 n. 8. The plaintiffs there "presented no plausible explanation of how defendants could have charged unreasonable prices in the face of a market for housing which showed no indicia of being monopolized or uncompetitive. In other words, there [was] no adequate explanation of how the defendants could have obtained the market power to do what they [were] accused of doing." Id. at 211.

The language quoted by the defendants, however, does not support the claim that exploitation liability requires market power in the traditional sense of a large enough share of the market. What the Seventh Circuit requires, rather, is an economically credible explanation of how an exploiter can stay in business charging above-market prices. Clark II suggests that this could be established in at least three ways: by a showing of (1) collusion, (2) market power based in market share, or (3) some other basis not there offered by the plaintiffs. The Seventh Circuit does not make market power necessary for exploitation liability, as is shown by the explanatory qualification at 706 F.2d at 212 n. 8, cited by the defendants themselves. Market power based in market share is just one way to show the mechanism by which the exploitation occurs. A plaintiff may show others.

B.


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