Cherry v. Amoco Oil Co.
1980 U.S. Dist. LEXIS 11779, 490 F.Supp. 1026 (1980)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A plaintiff alleging discrimination under the Equal Credit Opportunity Act based on a disparate impact theory must present statistical evidence that clearly demonstrates a significant correlation between a facially neutral credit criterion and a disproportionate adverse effect on a protected class, and this evidence must relate to the actual applicant pool or a reasonably approximate one.
Facts:
- Ms. Cherry, a white woman, resided in a predominately non-white residential area in Atlanta, Georgia.
- She applied for a gasoline credit card from Amoco Oil Company.
- Amoco Oil Company denied Ms. Cherry's credit card application.
- Amoco utilized a computerized system that evaluated 38 objective factors, including its prior credit experience in the applicant's U.S. Postal Service zip code area.
- Ms. Cherry's zip code area, 30310, received a rating of 1, the least desirable rating on a scale of 1 to 5, due to Amoco's unfavorable delinquency experience in that area.
- If Ms. Cherry had resided in a zip code area rated 3 or above, her credit card application would have been approved, assuming all other information on her application remained constant.
- Amoco's rejection letter stated "our previous credit experience in your immediate geographical area" as one of the reasons for denial.
- Ms. Cherry testified she felt humiliated and embarrassed by the rejection and had to disclose it on subsequent credit applications.
Procedural Posture:
- Ms. Cherry filed a lawsuit against Amoco Oil Company in the United States District Court for the Northern District of Georgia, seeking damages under the Equal Credit Opportunity Act.
- Ms. Cherry's request to amend her pleadings to add a claim for injunctive relief was denied by the court on April 25, 1980.
- Amoco challenged Ms. Cherry's standing, which the court addressed in an order on November 28, 1979.
- Amoco moved for involuntary dismissal after the plaintiff's evidence and again after all evidence was presented, arguing that Ms. Cherry failed to establish a prima facie case. The court held these motions under advisement.
- The case was tried to the Court sitting without a jury on April 29-30, 1980.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a plaintiff establish a prima facie case of racial discrimination under the Equal Credit Opportunity Act by showing a correlation between a credit company's low-rated zip codes and predominantly non-white areas, without demonstrating that the zip code criterion itself disproportionately affects black applicants from a relevant applicant pool?
Opinions:
Majority - Orinda Dale Evans
No, a plaintiff does not establish a prima facie case of racial discrimination under the Equal Credit Opportunity Act by merely showing a correlation between low-rated zip codes and predominantly non-white areas if the evidence does not specifically test the impact of the zip code criterion itself on a relevant applicant pool. The Court found in favor of Amoco Oil Company. The court first held that proof of actual damages is not necessary to be entitled to relief under the ECOA, noting that the Act envisions recovery of punitive damages, equitable relief, or attorney's fees even without actual damages. Regarding the prima facie case, the court concluded that the "effects test" concept, derived from Griggs v. Duke Power Company (a Title VII employment discrimination case), is an available method for plaintiffs under the ECOA. This is because credit discrimination is often unintentional and creditors are prohibited from inquiring into an applicant's race. Under this test, a plaintiff shows disparate impact on a protected class, and the burden shifts to the defendant to show the requirement is necessary for legitimate business objectives. However, the court found Ms. Cherry's statistical evidence deficient. Her proof showed a correlation between acceptance rate/percentage of white population (or rejection rate/percentage of non-white population) in low-rated zip code areas, but it failed to isolate the effect of the zip code criterion specifically. Instead, it tested the effect of Amoco's overall 38-criteria grading scheme. Moreover, her analysis did not deal with an actual applicant pool or one reasonably assumed to have similar characteristics, which is crucial for a valid statistical comparison of disparate impact. The court acknowledged that in an area with a segregated housing pattern, zip code ratings could become suspect if they disproportionately penalize otherwise qualified black applicants. But the evidence presented did not establish such a pattern, as a majority of the low-rated zip code areas were predominantly white, and 60% of the population in such areas was white. The court lacked sufficient data to analyze whether the ratings adversely affected income-qualified black persons more than income-qualified whites.
Analysis:
This case is significant for applying the "effects test" (disparate impact) from Title VII employment law to the Equal Credit Opportunity Act, indicating that ECOA prohibits unintentional discrimination. However, it also highlights the substantial evidentiary challenges plaintiffs face in proving such claims, particularly the difficulty of constructing a proper statistical comparison when direct racial data on applicants is prohibited. The court's detailed discussion of what constitutes a valid statistical showing under the effects test provides a framework for future ECOA litigation, emphasizing the need to isolate the challenged criterion's impact on a relevant applicant pool.
