4-4 Decision Keeps Issue Unresolved Outside of 8^th Circuit

On March 22, 2016, the U.S. Supreme Court affirmed the decision of the 8^th Circuit Court of Appeals in favor of Lathrop & Gage LLP client Community Bank of Raymore (“CBR”) in Hawkins v. Community Bank of Raymore. The CBR team of Greer S. Lang, Tom Stahl and Justin Nichols, with the assistance of Stephen R. McAllister, successfully defended the 8^th Circuit’s decision that the Equal Credit Opportunity Act (“ECOA”) unambiguously excludes guarantors from its protection, because they are not “applicants for credit,” and cannot use the ECOA to avoid liability on their guaranties.

The decision in Hawkins marks the Supreme Court’s first 4-4 decision since the death of Justice Antonin Scalia in February 2016. Justice Scalia actively questioned and appeared skeptical of the petitioners’ position at oral argument. As a result of today’s affirmance of the 8^th Circuit, that decision is now binding precedent for those federal courts within the geographic scope of the 8^th Circuit (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota), but does not carry absolute precedential effect nationally.

From 2005 to 2008, CBR made four loans in excess of $2 million to PHC Development, LLC. Valerie Hawkins and Janice Patterson, the petitioners before the Supreme Court, alleged that they were required to provide guaranties of CBR’s loans to PHC Development (in violation of ECOA and Regulation B) solely because they are the spouses of PHC’s owners. In the U.S. District Court for the Western District of Missouri, The Honorable Dean Whipple granted summary judgment in CBR’s favor, finding that guarantors are not “applicants” for credit under the ECOA’s unambiguous definition of that term and are thus not protected from marital status discrimination under the Act. The 8^th Circuit affirmed in a unanimous decision. The U.S. Supreme Court granted certiorari to review the issue in light of a conflicting decision from the 6^th Circuit, RL BB Acquisitions, LLC v. Bridgemill Commons Dev. Group, which held that guarantors are “applicants” within the meaning of the ECOA and Regulation B.

As a result of the Supreme Court’s decision today, the 8^th Circuit decision in Hawkins remains the law of the 8^th Circuit—but the 6^th Circuit decision in RL BB Acquisitions remains the law of the 6^th Circuit, as well. Lathrop & Gage expects that today’s decision will lead to additional decisions in the future from other circuit courts of appeal which may further refine the law on this issue.