BEFORE THE IOWA CIVIL RIGHTS COMMISSION

VINCENT LEWIS, Complainant, and IOWA CIVIL RIGHTS COMMISSION,

vs.

HURL KNIGHT, Respondent.

CONCLUSIONS OF LAW:

A. Jurisdiction and Procedure:

1. Vincent Lewis' complaint was timely filed within one hundred eighty days of the alleged discriminatory practice. Iowa Code S 601A.15(11) (now S 216.15(11)) (1989). See Finding of Fact No. 1. All the statutory perquisites for hearing have been met, i.e. investigation, finding of probable cause, attempted conciliation, and issuance of Notice of Hearing. Iowa Code S 216.15) (1993). See Finding of Fact No. 2.

2. Iowa Code section 601A.8(1)(2)(1989) states, in part:

It shall be an unfair or discriminatory practice for any owner, or person acting for an owner, of rights to housing or real property, with or without compensation, . . .

1. To refuse to sell, . . . assign . . . any real property or housing accommodation or part, portion, or interest therein, to any person because of the race . . . of such person.

2. To discriminate against any person because of the person's race . . . in the terms, conditions, or privileges of the sale . . . of any real property or housing accommodation, or any . . . interest therein.

Iowa Code section 601A.8(1)(2) (1989)(now renumbered to section 216.8(1)(2)(emphasis added).

3. Iowa Code section 601A.11(1) states:

It shall be an unfair or discriminatory practice for:

1. Any person to intentionally . . . compel, or coerce another person to engage in any of the practices declared unfair or discriminatory by this chapter.

Iowa Code section 601A.11(1) (1989)(now renumbered to section 216.11(1)(emphasis added).

4. Subject matter jurisdiction ordinarily means the authority of a tribunal to hear and determine cases of the general class to which the proceedings in question belong. Tombergs v. City of Eldridge, 433 N.W.2d 731, 733 (Iowa 1988). Vincent Lewis' complaint is within the subject matter jurisdiction of the Commission as the allegations that the Respondent refused to sell a house or coerced another to refuse to sell to Complainant Lewis because of his race are within the class of cases which the Commission has the power to hear and determine. Iowa Code SS 601A.8, .11 (now SS 216.8, .11).

5. There is no requirement in the statute that there be an enforceable real estate contract in existence between a prospective purchaser alleging discrimination and a seller or a person who must give consent to the sale of the property in order for the prospective purchaser's rights under the Iowa Civil Rights Act to be enforced. For example, if an owner of real property admitted that he refused to sell the property to a person because of that person's race, a violation of Iowa Code section 601A.8 would be established despite the absence of any contractual relationship between the prospective purchaser and the owner. See Iowa Code S 601A.8 (now 216.8).

6. Respondent Knight is covered by section 601A.8 because he is the "owner . . . of rights to housing or real property." Iowa Code S 601A.8(now 216.8). See Findings of Facts Nos. 5, 6. "[A] 'right' is well defined as 'a capacity residing in one man of controlling, with the assent and assistance of the state, the actions of others.'" BLACK'S LAW DICTIONARY 1189 (5th ed. 1979).

7. Respondent Knight and his wife had entered into a real estate contract with the Watsons whereby the Watsons were purchasing the property from the Knights. Subsequent to entering this contract, the Watsons placed the house on the market. See Findings of Fact Nos. 5, 12-13. The general rule describing the legal relationship of the seller and the purchaser with respect to the property under such a contract is that:

[A] contract for the purchase of real estate works an equitable conversion. The contract vendee [i.e. purchaser] becomes the equitable owner; the contract vendor [i.e. seller] holds [legal] title as trustee for his purchaser. . . . The seller has effectively divested himself of all interest in the property except the right to collect the purchase price.

Fellmer v. Gruber, 261 N.W.2d 173, 174 (Iowa 1978)(emphasis added).

8. The seller may, however, by agreement with the purchaser, retain a greater interest in the property than the right to collect the purchase price provided by the general rule. See Fellmer v. Gruber, 261 N.W.2d 173, 174 (Iowa 1978); The seller, for example, may, by agreement with the purchaser, retain a right to the proceeds from insurance policies covering the property. See id. Or, as in this case, the purchaser and seller may reach an agreement to limit the right the purchaser would otherwise have to assign his interest to a third party. United Central Bank of Des Moines v. Kruse, 439 N.W.2d 849, 853 (Iowa 1989). They may also, as in this case, include a forfeiture clause in the contract, which would be a typical feature of such an installment contract. See Westercamp v. Smith, 239 Iowa 705, 715, 31 N.W.2d 347 (1948); Only if such clause is in the contract may a forfeiture be worked through failure of the purchaser to pay the vendor whereby the purchaser must relinquish his interest in the property without receiving reimbursement for monies previously paid. See id.

9. In the instant case, the sellers, the Knights, not only have the right to collect the purchase price from the purchasers, the Watsons, provided by the general rule governing the operation of real estate contracts, but have, by agreement with the purchaser, secured the specific contract right to prior approval over assignment of the contract and sale of the property and have included a forfeiture clause with its attendant rights. See Findings of Facts Nos. 6 and 7. There is no question that these rights give Respondent Knight "a capacity . . . of controlling, with the assent and assistance of the state [through the availability of a civil action to enforce the contract], the actions of others, [i.e. the Watsons]." See Conclusion of Law No. 7. Respondent Knight is clearly the owner of rights to real property or housing.

10. Respondent Knight is also covered by Iowa Code section 601A.11(1) as he is a "person" subject to the prohibitions of that section. Iowa Code S 601A.11(1) (1989). Under this statute, a "'[p]erson' means one or more individuals." Iowa Code S 601A.2(2) (1989). See Finding of Fact No. 4.

B. Complainant Lewis Established a Prima Facie Case of Race Discrimination In Housing:

11. There is no direct evidence of racial discrimination in this case. See Finding of Fact No. 15. Therefore, the circumstantial evidence method of proof must be relied upon by the Commission in order to prove discrimination. See Landals v. Rolfes Co., 454 N.W.2d 891, 893-94 (Iowa 1990); R. Schwemm, Housing Discrimination Law and Litigation S 10.2 n.16 (1993)(looseleaf)(direct evidence rarely available).

12. A prima facie case of discrimination under the circumstantial evidence method may be established by proof that:

(1) [Complainant] is a member of a racial minority or other protected class.

(2) [Complainant] applied for and was qualified to . . . purchase the unit involved;

(3) [Complainant] was rejected by the [Respondent]; and,

(4) the housing opportunity remained available thereafter.

R. Schwemm, Housing Discrimination Law and Litigation S 10.2 & n.27 (1993)(looseleaf). An alternative method of establishing a prima facie case is to omit the fourth element and require that the Respondent be aware of the complainant's membership in a protected class. Id. at n.27. A prima facie case of discrimination was established under both alternatives. See Findings of Fact Nos. 16-22.

13. It is also alleged that Respondent Knight compelled or coerced another (i.e. the Watsons) to reject Complainant Lewis offer because of his race. A prima facie case of this violation was also established by facts which were the same as or similar to those which established the prima facie case of discrimination:

(1) [Complainant] is a member of a racial minority or other protected class.

(2) [Complainant] applied for and was qualified to . . . purchase the unit involved;

(3) [Complainant] was rejected because the [Respondent failed to give approval for assignment of the contract to him]; and,

(4) the housing opportunity remained available thereafter.

Cf. R. Schwemm, Housing Discrimination Law and Litigation S 10.2 & n.27 (1993)(looseleaf)(modification of elements of prima facie case of discrimination in housing). A prima facie case was also established through an alternative method whereby the fourth element is omitted and the Respondent is shown to be aware of the complainant's membership in a protected class. See Id. at n.27.

C. Respondent Knight Rebutted the Prima Facie Case of Discrimination in Housing By Producing Evidence of Legitimate Non-Discriminatory Reasons for His Rejection of Complainant Knight:

14. The Complainant has met his initial burden of proving a prima facie case of discrimination by a preponderance of the evidence. Trobaugh v. Hy-Vee Food Stores, Inc., 392 N.W.2d 154, 156 (Iowa 1986). This showing is not the equivalent of an ultimate factual finding of discrimination. Furnco Construction Corp. v. Waters, 438 U.S. 579 (1978). Once a prima facie case is established, a presumption of discrimination arises. Trobaugh v. Hy-Vee Food Stores, Inc., 392 N.W.2d 154, 156 (Iowa 1986); Pinchback v. Armistead Homes Corp., 907 F.2d 1447, Fair Hous. Fair Lend. (Looseleaf) § 15638 at p. 16274 (4th Cir. 1990).

15. The burden of production then shifts to the Respondent, i.e. the Respondent is required to produce evidence that shows a legitimate, non-discriminatory reason for its action. Id.; Linn Co-operative Oil Company v. Quigley, 305 N.W.2d 728, 733 (Iowa 1981); Wing v. Iowa Lutheran Hospital, 426 N.W.2d 175, 178 (Iowa Ct. App. 1988). If Respondent does produce evidence of a legitimate non- discriminatory reason for its actions, the presumption of discrimination drops from the case. Trobaugh v. Hy-Vee Food Stores, Inc., 392 N.W.2d 154, 156 (Iowa 1986).

16. In order to rebut the Complainant's prima facie case, the Respondent must introduce admissible evidence which would allow the finder of fact to rationally conclude that the challenged decision was not motivated by discriminatory animus. Linn Co-operative Oil Company v. Quigley, 305 N.W.2d 728, 733 (Iowa 1981). The Respondent need not persuade the finder of fact that it was actually motivated by the proffered reasons. Id. At this stage of the circumstantial evidence analysis no assessment is made of whether the evidence produced is credible or persuasive. See St. Mary's Honor Center v. Hicks, ___ U.S. ___, 62 Fair Empl. Prac. Cas. 96, 100 (1993).

17. Respondent Knight met this burden of production by introducing evidence of two reasons for failing to approve the sale to Complainant Lewis: (1) Lewis intended to rent the property and not to occupy it or have it occupied by a close relative and (2) Knight had received an offer from Barton and Richards which included a balloon payment provision which would result in complete payment of the purchase price of the property within five years, as opposed to the fifteen year period contemplated by the Lewis offer. See Finding of Fact No. 23

18. A third reason was suggested on brief by Respondent: that the Lewis offer was rejected because Respondent Knight wished to keep the Watsons liable for any remaining payments, because of their regular payment record, and this would not be possible if Lewis entered into a new contract with the Knights, as set forth in his offer, which would relieve the Watsons of liability. See Finding of Fact No. 24. This was not sufficient to meet Respondent's burden of production because Respondent offered no evidence articulating this as a reason for the rejection of Lewis's offer. See Finding of Fact No. 24. Respondent's burden of production cannot be met "merely through an answer to the complaint or through argument of counsel." Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 255, 101 S.Ct. 1089, 67 L.Ed.2d 207, 216 n.9 (1981).

19. Nor can this burden be met, with respect to this third reason, by inferring that it was a reason based on Respondent Knight's general comment to Phylip Watson that he would like to keep Watson involved after the sale because Watson was a good buyer who made his payments. This comment to Watson does not specifically identify this factor as a reason for not approving Lewis's offer and thus fails to "be specific and clear enough for the [Complainant] to address and legally sufficient to justify judgment for the [Respondent]." Wing v. Iowa Lutheran Hospital, 426 N.W.2d 175, 178 (Iowa Ct. App. 1988).

20. In addition, reliance on such statements from a decisionmaker to a witness would constitute reliance on a witness who had no personal knowledge of the actual Respondent reasons for the rejection. Reliance on what someone reported to a witness is not sufficient to meet Respondent's burden, John Mack Burton, XI Iowa Civil Rights Commission's Case Reports 1, 9 (1990)(citing Gruener v. City of City Falls, 189 N.W.2d 577, 580 (Iowa 1971)), which requires that the evidence produced must be sufficient to raise "a genuine issue of material fact as to whether Respondent discriminated against the Complainant." Hamilton v. First Baptist Elderly Housing Foundation, 436 N.W.2d 336, 338 (Iowa 1989). Likewise, the conclusory statements of others not involved in the Respondent's decisionmaking process are not sufficient to meet this burden of production. See John Mack Burton at 9.

Complainant Lewis Failed to Show that Respondent Knight's Reasons for Refusing to Approve or Accept Complainant Lewis's Offer Were Pretexts for Discrimination:

21. Once the Respondent has produced evidence in support of such reasons, the burden of production then shifts back to the Complainant to show that the reasons given are pretextual. Trobaugh v. Hy-Vee Food Stores, Inc., 392 N.W.2d 154, 157 (Iowa 1986); Wing v. Iowa Lutheran Hospital, 426 N.W.2d 175, 178 (Iowa Ct. App. 1988). Pretext may be shown by "persuading the [finder of fact] that a discriminatory reason more likely motivated the [Respondent] or indirectly by showing that the [Respondent's] proffered explanation is unworthy of credence." Wing v. Iowa Lutheran Hospital, 426 N.W.2d 175, 178 (Iowa Ct. App. 1988) (quoting Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 256, 101 S. Ct. 1089, 1095, 67 L. Ed. 2d 207, 216 & n.10 (1981)).

22. With respect to the latter method, the finder of fact is permitted, but not required, to determine that its "disbelief of the reasons put forward by the defendant . . . together with the elements of the prima facie case suffice to show intentional discrimination." St. Mary's Honor Center v. Hicks, ____ U.S. ____, 62 Fair Empl. Prac. Cas. 96, 100 (1993). See Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 255, 101 S. Ct. 1089, 1095, 67 L. Ed. 2d 207, 216 n.10 (1981)(Complainant's initial evidence and inferences drawn therefrom may be considered on the issue of pretext).

23. There are a variety of ways to show that a Respondent's reason for an action is a pretext for discrimination. See La Montagne v. American Convenience Products, Inc., 750 F.2d 1405, 1409, 36 Fair Empl. Prac. Cas. 913, 922 n.6 (7th Cir. 1984). Reasons articulated for a challenged action may, for example, be proved to be a pretext for discrimination by evidence showing:

(1) that the proffered reasons had no basis in fact, (2) that the proffered reasons did not actually motivate the [challenged action], or (3) that the proffered reasons were insufficient to motivate the [challenged action].

Bechold v. IGW Systems, Inc., 817 F.2d 1282, 43 Fair Empl. Prac. Cas. 1512, 1515 (7th Cir. 1987). The Commission set forth several arguments asserting that Respondent's reasons were pretexts for discrimination. These arguments were considered and rejected in the findings of fact. See Findings of Fact Nos. 25-57.

Balloon Payment Financing:

23A. In the discussion of whether the balloon payment reason was a pretext for discrimination in the findings of fact, official notice was taken of several facts with respect to balloon payment financing. See Finding of Fact No. 50. Official notice of these facts was proper because these are facts which are within the specialized knowledge of the agency, i.e. its specialized expertise with respect to housing. Iowa Code S 17A.14(4) (1991).

24. The facts of which official notice was taken have also been noted in various legal authorities. A "balloon payment" is defined as "the final payment of principal under a balloon note; commonly represents essentially the entire principal." BLACK'S LAW DICTIONARY 130 (5th ed. 1979). A balloon note "commonly calls for minimum payments of principal, if any, and payments of interest at regular intervals, but which requires a substantial payment of principal at the end of the term; the final payment frequently representing all the remaining principal." Id. Similarly, a "balloon mortgage" is defined as "a mortgage providing for specific payments at stated regular intervals with the final payment considerably more than any of the periodic payments." Id. Often this amount is the full balance due. Note, Alternative Mortgage Instruments, the Oklahoma Experience, 8 Okla. City U. L. Rev. 121, 124 (1983).

25. The use of balloon payment provisions in financing instruments as a device to permit potential buyers, who are not able to obtain conventional financing, such as a standard thirty year mortgage, to buy a home has also been noted in various sources discussing "creative financing" of private housing. See P. Rohan, Vol. 4 Part 2 Real Estate Transactions: Real Estate Financing SS 3B.01-3B.02 (1987); Epley and Rabianski, The Components of Creative Financing, 11 Real Estate L.J. 223, 229 (1983). The underlying assumption in such transactions is that there will be a change in circumstances, such as a reduction in interest rates, whereby the buyer will be able to obtain conventional financing in time to pay off the balloon payment. Cf. Hiller, Mortgage Loan Costs: The Impact of Variable Interest Rates and Negotiability, 18 Real Estate L.J. 259,, 268 (1990); See P. Rohan, Vol. 4 Part 2 Real Estate Transactions: Real Estate Financing S 3B.01 (1987); Epley and Rabianski, The Components of Creative Financing, 11 Real Estate L.J. 223, 223 (1983)(all noting that one result of the high interest rates of the 1980s was the use of various creative financing devices instead of conventional financing). The procedure, in other words, "allows the buyer a predetermined amount of time to raise financial resources to discharge the debt." Epley and Rabianski, The Components of Creative Financing, 11 Real Estate L.J. 223, 229 (1983). The risk is that the buyer may not be able to obtain new financing and thus lose the house. See P. Rohan, Vol. 4 Part 2 Real Estate Transactions: Real Estate Financing SS 3B.01-3B.02 (1987).

Credibility and Testimony:

26. In addition to the factors mentioned in the section entitled "Course of Proceedings" and in the findings on credibility in the Findings of Fact, the Administrative Law Judge has been guided by the following principles: First, "[w]hen the trier of fact . . . finds that any witness has willfully testified falsely to any material matter, it should take that fact into consideration in determining what credit, if any, is to be given to the rest of his testimony." Arthur Elevator Company v. Grove, 236 N.W.2d 383, 388 (Iowa 1975). "[I]n the determination of litigated facts, the testimony of one who has been found unreliable as to one issue may properly be accorded little weight as to the next." NLRB. v. Pittsburgh Steamship Company, 337 U.S. 656, 659 (1949) (rejecting proposition that consistently crediting witnesses of one party and discrediting those of the other indicates bias). Second, "[t]he trier of facts may not totally disregard evidence but it has the duty to weigh the evidence and determine the credibility of witnesses. Stated otherwise, the trier of facts . . . is not bound to accept testimony as true because it is not contradicted. In Re Boyd, 200 N.W.2d 845, 851-52 (Iowa 1972).

27. Furthermore, the ultimate determination of the finder of fact "is not dependent on the number of witnesses. The weight of the testimony is the important factor." Wiese v. Hoffman, 249 Iowa 416, 424, 86 N.W.2d 861, 867 (1957). In determining the credibility of a witness and what weight is to be given to testimony, the factfinder may consider the witness' "conduct and demeanor. . . [including] the frankness, or lack thereof, and the general demeanor of witnesses," In Re Moffatt, 279 N.W.2d 15, 17-18 (Iowa 1979); Wiese v. Hoffman, 249 Iowa 416, 424, 86 N.W.2d 861, 867 (1957), as well as "the plausibility of the evidence. The [factfinder] may use its good judgment as to the details of the occurrence . . . and all proper and reasonable deductions to be drawn from the evidence." Wiese v. Hoffman, 249 Iowa 416, 424-25, 86 N.W.2d 861 (1957).

28.

Evidence on an issue of fact is not necessarily in equilibrium because the witnesses who testify to the existence of the fact are directly contradicted by the same number of witnesses, even though there is but a single witness on each side and their testimony is in direct conflict.

. . .

Numerical preponderance of the witnesses does not necessarily constitute a preponderance of the evidence so as to require a contested question of fact to be decided in accordance therewith. . . . [T]he intelligence, fairness, and means of observation of the witnesses, and various other recognized factors in determining the weight of the evidence . . . should be taken into consideration. . . . It is, of course, well recognized that the preponderance of the evidence does not depend upon the number of witnesses.

Id., 249 Iowa at 425, 86 N.W.2d 861.