BEFORE THE IOWA CIVIL RIGHTS COMMISSION

VINCENT LEWIS, Complainant, and IOWA CIVIL RIGHTS COMMISSION,

vs.

HURL KNIGHT, Respondent.

FINDINGS OF FACT:

A. Jurisdictional and Procedural Facts:

1. On April 24, 1990, Complainant Vincent Lewis filed his complaint, CP # 04-90-19820, alleging race discrimination in housing which is prohibited by Iowa Code section 601A.8 (now 216.8). The date of the alleged discriminatory refusal to sell the house in question is given as March 28, 1990. (Complaint). Official notice is taken that April 24, 1990 is twenty-seven days after March 28, 1990. Fairness to the parties does not require that they be given the opportunity to contest this fact.

2. The complaint was investigated. After probable cause of race discrimination was found, conciliation was attempted and failed. Notice of Hearing was issued on June 19, 1991. (Notice of Hearing). The notice of hearing was amended without objection effective November 26, 1991. (Prehearing Conference Order). The amendment stated, in part:

Complainant alleges that Respondent violated Section 601A.8 and section 601A.11(1) (by compelling or coercing another to violate S 601A.8) through his actions as stated in the complaint.

(Commission's First Amendment to the Notice of Hearing)

(emphasis in original).

3. This is an administrative proceeding to consider alleged violations of the Iowa Civil Rights Act's prohibitions against housing discrimination and compelling or coercing another to violate the Act. (Notice of Hearing; Commission's Motion for Leave to Amend; Prehearing Conference Order). It is not an action to enforce a real estate contract.

4. Respondent Hurl Knight is an "individual." He is also the owner of rights to real property or housing as set forth in findings of fact number 5 through 7 below.

5. Respondent Hurl Knight, and his wife, are the legal title holders to the real property in question, which was being sold by Knight and his wife, Virginia Knight, on an installment real estate contract to Phylip and Juanita Watson. (R. EX. C; Tr. at 85-86, 128-29, 137). As admitted on brief, his status as vendor under this contract gives him an interest in the property in question, "the right to collect the purchase price." (Respondent's Brief at 12-13).

6. In addition, due to the forfeiture clause in the contract, if the Watsons were to fail to make their payments, the Knights would have the right to enforce a forfeiture whereby the Knights would recover the property without any obligation to reimburse the Watsons for payments made. (R. EX. C _ 12).

7. The contract, which was signed by the Watsons and the Knights on January 11, 1989, had a "special provision" which stated "[t]he contract may be assigned and the property sold with prior approval of the seller." (R. EX. C). As indicated by this provision, and admitted by Respondent Knight in his testimony and on brief, he had the right to refuse to permit the Watsons' assignment of the contract or sale of the property to a new purchaser. (R. EX. C; Tr. at 160-61). Respondent's Brief at 3-4. Thus, Knight was also the owner of this contract right to housing or real property, i.e. a right of prior approval to the assignment of the contract or to the sale of the property.

B. Background:

Complainant Lewis's Background:

8. Complainant Lewis, an African-American male, is employed as a high school principal in the city of Des Moines. (Tr. at 5-6, 73). He is married with four minor children. (Tr. at 5).

9. Complainant Lewis decided to look for a second house for rental property. He did this with the intention of securing the long-term financial future and welfare of his children by purchasing a house for each one. (Tr. at 7, 66). He had hoped that, by the time his children had finished high school, college or trade school, they would be given the properties to either live in, rent, or sell, as "a step up in starting life." (Tr. at 29).

10. To meet these goals, Complainant Lewis decided to search for a house which he could buy by assuming the contract. He wished to do this because he believed (a) it would be more difficult to obtain a loan for a home which he would not be living in; and, (b) the down payment required on an assumption would be smaller. He wanted a home with a price of approximately $30,000. He gave this criteria to Ed Harris, a real estate broker, who assisted him in his search. (Tr. at 7-8, 66-67).

11. The first house Complainant Lewis viewed was the property the Watsons were buying on contract from the Knights. (Tr. at 9). This house was a small, well-kept 2 bedroom bungalow located at 1535 - 33rd Street in Des Moines. This area was close enough to Drake University to assure the Complainant that renters would be available. (CP. EX. 4; Tr. at 9).

Respondent Knight's and the Watsons' Background:

12. In April of 1990, Respondent Hurl Knight was approximately 65 years old. (Tr. at 134, 138). He and his wife, Virginia, had lived at the home at 1535 - 33rd Street for 42 years until moving out in 1988. (Tr. at 135). After leaving, the house was on the market for six months until it was sold on contract to Phylip and Juanita Watson in January of 1989. (R. EX. C; Tr. at 85-86, 137).

13. The primary reason why the Watsons bought the house was to rent it to their daughter. (Tr. at 125-26). The house was utilized as a residence by the Watsons' daughter until January 2, 1990, when she left. (Tr. at 125). The Watsons' daughter moved out because she felt the Knights' inspections of the property, which were permitted under the contract every 60 days, were too frequent and violated her privacy. (R. EX. C; Tr. at 111, 112). After trying without success to rent the property, the Watsons listed it for sale in late January of 1990. (Tr. at 127-28). The listing gave the Watsons as the owners. (CP. EX. 4). After fifty or sixty days on the market, offers began to come in to the Watsons. (Tr. at 128).

Other Offers on the Property:

14. Initial written offers on the property were made to the Watsons. If they found the offer acceptable, the Watsons would refer the offer to the Knights, through the Watsons' listing agent, Marilyn Bourdonris. (Tr. at 114, 116, 119-20, 153-54). Due to the Knights' right of prior approval under the contract, they had the final authority on whether or not an offer would be accepted. (R. EX. C; Tr. at 113, 160- 61). There was another offer on the property at the time Lewis presented his offer. The timing of these offers will be discussed in detail with respect to the "pretext" issue.

Absence of Direct Evidence of Discrimination:

15. There is no direct evidence in the record of discrimination, such as the use of racial slurs or any statements by Respondent Hurl Knight to the effect that the complainant was not permitted to purchase the property because of his race. (Tr. at 57, 105-06).

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

Complainant Lewis Is a Member of a Racial Minority:

16. Complainant Lewis is an African-American. (Tr. at 5).

Complainant Lewis Applied for and Was Qualified to Purchase the Housing Unit Involved:

17. Complainant Lewis made a written offer to purchase the property. (CP. EX. # 1, 2; Tr. at 10, 12-14, 69-70, 115). Lewis's original offer, Complainant's Exhibit # 1, was accepted as a "backup offer" by the Watsons. (CP. EX. # 1; Tr. at 70, 99, 115). This means that, if a prior offer, already accepted by the Watsons and then under consideration by the Knights, was rejected by the Knights, then the Lewis offer would be "another offer that we would have already in hand to start with our negotiations on . . . that purchase offer." (Tr. at 70, 115).

18. Lewis was qualified in the sense that he had the money to live up to his offer. (Tr. at 99). Complainant's real estate broker, Ed Harris, also prepared an amendment, Complainant's Exhibit # 2, to the initial offer in order to meet requirements set forth by Respondent Knight in a telephone conversation. The conversation occurred prior to the time on March 27th when Knight showed the house to Harris and Complainant Lewis. (CP. EX. # 2; Tr. at 12, 14, 71- 73, 75-76, 99, 148). This also demonstrates that Lewis was a "qualified" purchaser, i.e. one who met the minimum expressed objective requirements of the seller or, in this case, of the person whose prior approval was required before a sale could be effected.

Complainant Lewis's Offer was Rejected By Respondent Knight:

19. On March 28, 1990, the day after Complainant Lewis and Ed Harris were shown the house by Respondent Knight, Knight telephoned Lewis and informed him that he was not going to sell the property to Lewis, but was going with another offer. (Tr. at 14, 17, 150, 154-55, 163-64). Complainant Lewis informed Ed Harris of Respondent Knight's rejection. (Tr. at 81-82). Under the terms of the contract between Watson and Knight, because of Knight's rejection of the Lewis offer, Watson was compelled to forego assigning his contract or selling the property to Lewis. (R. EX. C).

The Housing Opportunity Remained Available After Respondent Knights' Rejection of Complainant Lewis's Offer:

20. As previously noted, Respondent Knight's statement to Lewis on March 28th indicated he was going to accept another offer. (Tr. at 17, 150, 163-64). This would tend to indicate that, at time of the rejection of Lewis's offer, Knight had not yet accepted the other offer although he was aware of it and was planning on accepting it. Therefore, the housing opportunity remained available after the rejection of Complainant Lewis's offer.

Respondent Hurl Knight Was Aware that Complainant Lewis Was Black at the Time of the Rejection:

21. On March 27, 1990, prior to the rejection of Complainant Lewis offer, Respondent Hurl Knight met with Lewis and Ed Harris to show them the property. (Tr. at 12, 14, 148). That Complainant Lewis can readily be visually ascertained to be a Black person is demonstrated not only by the observation of the Complainant by the administrative law judge, but also by Lewis's testimony to the effect that, after his rejection he considered sending his wife, who is Caucasian, to look at properties so he would not be denied a property due to his race. (Tr. at 28, 30). It may be reasonably inferred, and is inferred, that Respondent Knight knew Complainant Lewis was Black at the time Knight rejected his offer.

22. For reasons set forth in the conclusions of law, findings of fact numbers 16 through 20 above are sufficient to establish prima facie cases of race discrimination in housing and of compelling or coercing a person to discriminate in housing. Prima facie cases of these violations were also established through an alternative method whereby findings of fact numbers 16 through 19 and number 21 are sufficient to establish prima facie cases. See Conclusions of Law Nos. 12-13.

D. Respondent Knight Rebutted the Prima Facie Case Through the Introduction of Evidence Setting Forth Legitimate Non- Discriminatory Reasons for His Rejection of Complainant Lewis's Offer:

23. Respondent Knight offered evidence, through his testimony, of legitimate non-discriminatory reasons for his rejection of Complainant Lewis's offer. These reasons were: (1) that he wanted the property to be sold to a person that would either occupy it or have it occupied by a close relative for whom it was bought, i.e. he did not want to sell it to another owner that would use it as rental property, and (2) he had a better offer with a balloon payment provision which would pay off the balance of the principal at the end of five years as opposed to the 30 years allowed under the contract he had with the Watsons or the 15 years allowed under the contract proposed by Complainant Lewis. (Tr. at 147, 155-56, 160-61).

24. On brief, Respondent Knight suggested a third reason: that he rejected Complainant Lewis's proposal, which relieved the Watsons of future liability, because he wanted to maintain the Watsons' liability for any remaining payments under any future contract of sale because they had been very regular in making their payments. Respondent's Brief at 5. The Respondent, however, introduced no evidence in the record where this was specifically articulated as a reason for rejection of the Lewis offer. There is credible testimony by Knight to the effect that the Watsons were regular in their payments, and by other witnesses that such could have constituted a reason for rejecting Lewis's offer. Phylip Watson, for example, credibly testified that, at the time he mentioned to Knight that he wanted to put the property up for sale, Knight indicated he wanted to keep Watson involved because Watson was a good quality buyer who made his payments. But, there is no testimonial or other evidence, and particularly no evidence set forth by someone with authority to speak for the Respondent, to the effect that this actually was one of the Respondent's reasons for rejecting Lewis's offer. (Tr. at 43, 63, 91, 129, 138).

E. Respondent Knight's Preference for Selling the Property to Someone Who Would Either Occupy the Property or Have It Occupied by a Close Relative Has Not Been Shown to Be a Pretext for Discrimination:

Respondent Knight's Concern About the Risks of Rental Property:

25. Respondent Knight's course of conduct from the time of the original sale of his house has reflected a strong concern about selling the house to someone who would rent the property. Based on his belief that there was less risk of damage to the property if it were owner occupied rather than rented, he would have preferred to sell the house to an owner occupier. (Tr. at 139, 147, 155-56, 160-61). It was sold to the Watsons, however, as rental property, on terms that were not completely to the Knight's satisfaction, due to the length of time the house was on the market. (Tr. at 137-38, 139, 160-61).

26. The fact that the Knights were willing to sell the house as rental property to the Watsons at a time when market conditions were poor and they had no income from the property does not mean the Knights were required to give their approval to sell the property as rental property once the Watsons wanted to sell. The past sale to the Watsons under different conditions does not demonstrate that the preference to sell to an owner-occupier is a pretext for discrimination. The preponderance of the evidence in the record also does not indicate that Respondent Knight's reluctance to approve the sale of the property as rental property applied only to Black potential owners.

27. Respondent Knight's concern was based on "horror stories" he had heard while working as accountant at U.S. Homes. One of his co-workers, who owned 30-40 rental properties, had told him about his tenants not paying rent, leaving in the middle of the night and knocking holes in the wall, and stealing appliances. The co-worker had also informed him of how much these misdeeds had cost him. Respondent Knight was "very leery" of renting out the property. (Tr. at 134, 139).

Respondent Knight's Past Actions With Respect to Protecting His Property:

28. To protect the condition of the property when he sold it on contract to the Watsons, Respondent Knight included the following "special provision":

A. Seller reserves the right to inspect the property every 60 days at the renters convenience and with 24 hour notice.

(R. EX. C; Tr. at 110). After the Watsons' daughter moved in, Respondent Knight conducted frequent and thorough inspections of the property, during which he discovered some damage to the property caused by her. (Tr. at 139, 158). As previously noted, these inspections were so frequent and so thorough that the daughter left because of them. (Tr. at 71, 111-12, 138).

Respondent Knight's Understanding of Complainant Lewis's Purpose in Offering to Purchase the Real Estate:

29. Prior to meeting with Complainant Lewis and Ed Harris at the property on March 27th, Respondent Knight had been informed, when he received Complainant Lewis's initial offer, that Lewis was buying the property for a relative. Respondent Knight had received the erroneous impression that either Complainant Lewis or a relative would be occupying the property. (CP. EX. # 5; Tr. at 82-83, 104, 161). He viewed the latter as being the same as "owner occupied" insofar as risk to the property was concerned. (Tr. at 161). It is clear Knight did not understand that Lewis was interested in the property so that it could be rented and later given to one of Lewis's children, the eldest of whom was then approximately 13 years old, after the child's graduation from school. (Tr. at 5, 66, 161). If Respondent Knight's initial misunderstanding had been correct, the situation presented by Complainant Lewis's offer would have been similar to that he initially had with the Watsons, i.e. the property would be occupied by a child of the owner.

30. The first time that Respondent Knight understood that Complainant Lewis wished to purchase the property for rental purposes was at the meeting on March 27th. (Tr. at 104). Knight showed Lewis the house, including items that had been damaged by the Watson's daughter, such as the latch on the front door. (Tr. at 15). Respondent Knight made comments and asked questions expressing a concern about future tenants damaging the property. Lewis interpreted these questions and comments as reflecting a racial stereotype, i.e. that Blacks are more likely to damage the property. (Tr. at 57-58). In light of the Knights' past experience and concerns with the risks of rental property, it seems more likely that these comments reflected Respondent Knight's longstanding concern with the risks attendant to rental property and his reaction to the new information that Lewis intended to rent the property.

Complainant's Broker Acknowledges Distinction Between Owner Occupied and Rental Property With Respect to Security of the Seller:

31. The Complainant's real estate broker, Ed Harris, acknowledged that there is greater security for the seller with a property being owner occupied as opposed to renter occupied. It is widely believed that owners occupying a property will take more pride in the property and give it better care than tenants. (Tr. at 93).

Complainant Lewis Acknowledges that Respondent Knight Informed Him that Knight Was Not Selling to Him Due to Rental Property Concerns and that Such Reason Constitutes a Legitimate Business Criteria for the Rejection:

32. Complainant Lewis admitted that Respondent Knight had informed him that he did not wish to sell the house to him because Lewis was going to rent it as opposed to living on the property. (Tr. at 18, 37). Although Lewis initially indicated serious doubt about the concept, he ultimately acknowledged that preferring to sell to someone who would be occupying the property, as opposed to someone who would rent the property to others, was a legitimate business criteria for making a real estate sales decision. (Tr. at 37, 63). Also, when Complainant Lewis initiated his search for property, he understood that it would be more difficult to obtain a loan for a house which he would not be living in than it would if he were occupying the property. (Tr. at 7).

The Offer Ultimately Considered Superior to Complainant Lewis's by Respondent Knight Was From Buyers Who Wished to Occupy the Property:

33. The final offer of Barton and Richards, discussed in greater detail below, was considered by Respondent Knight to be superior to Complainant Lewis's offer because it was an offer which could ultimately lead to purchase of the property for the purpose of living in it. These potential buyers would first occupy the property as renters and then, if they exercised their option to buy, as owner-occupants. (Tr. at 147, 154, 161).