On March 22, 2016, in Hawkins v. Community Bank of Raymore, No. 14–520, the United States Supreme Court upheld the Eighth Circuit’s decision that spousal guarantors could not bring a discrimination claim against creditors under the Equal Credit Opportunity Act (“ECOA”) because the guarantors did not qualify as “applicants” protected by the ECOA. See Hawkins v. Comty. Bank of Raymore, 761 F.3d 937 (8th Cir. 2014) (“Eighth Circuit’s Decision” or “Hawkins”). The Court’s decision was 4-4, which means the decision affirms the Eighth Circuit but lacks precedential effect.
Hawkins analyzed whether the ECOA’s definition of an “applicant” would permit spousal guarantors to pursue an ECOA claim solely because they executed guaranties to secure bank loans, and concluded it did not. The Eighth Circuit’s decision also rejected the Federal Reserve Board’s (“Fed”) 30-year-old interpretation of the law.
In Hawkins, the plaintiffs-appellants, wives of two businessmen (“plaintiffs”), alleged the defendant-appellee, Community Bank of Raymore, required them to personally guarantee roughly $2 million of their husbands’ business real estate loans. When the business defaulted on its loans, the bank declared the loans to be in default, accelerated the loans, and demanded payment from both the business and the plaintiffs.
The plaintiffs sued the bank, arguing that it had unlawfully required them to execute the guaranties securing the loans solely because of their marriages. They contended that the bank’s requirement constituted discrimination against them on the basis of their marital status in violation of ECOA. The district court granted summary judgment on the plaintiffs’ ECOA claim, concluding that the plaintiffs were not “applicants” within the meaning of ECOA and, as a result, the bank had not violated ECOA by requiring them to execute the guaranties. The plaintiffs appealed arguing, among other things, that the Fed’s regulation provided “the term [applicant] includes guarantors.” See 12 C.F.R. § 202.2(e).
The Eighth Circuit affirmed the district court’s order of summary judgment in favor of the bank, concluding via a Chevron analysis that “the text of the ECOA clearly provides that a person does not qualify as an applicant under the statute solely by virtue of executing a guaranty to secure the debt of another.” Hawkins, 761 F.3d at 941. The Hawkins Court also concluded that because the text of the ECOA statute was clear, the Court did not have to defer to the Fed’s interpretation of “applicant.”
The Eighth Circuit’s decision in Hawkins conflicts with the Sixth Circuit’s 2014 opinion in RL BB Acquisition, LLC v. Bridgemill Commons Development Group, LLC, 754 F.3d 380 (6th Cir. 2014). There have also been conflicting decisions in state courts in Alaska, Iowa, Missouri, and Virginia. Given the even split among the eight-member Court, it appears the final resolution of this issue will have to await a future case.