March 25, 2016
Authored by: Jerry Blanchard
In what goes for kicking the can down the road at the Supreme Court, the Court has evenly split on an appeal arising from the Eight Circuit Court of Appeals decision in Hawkins v. Community Bank of Raymore, 761 F3d 937 (CA8 2014) where that court found that the Federal Reserve had overstepped its bounds in adopting rules under the Equal Credit Opportunity Act to protect spousal guarantors. The case arose out of a series of loans in 2005 and 2008 made by the Bank—totaling more than $2,000,000—to PHC Development, LLC to fund the development of a residential subdivision. In connection with each loan and each modification, the principals of the LLC and their spouses (who had no interest in the LLC) executed personal guaranties in favor of Community to secure the loans.
The spouses defended themselves in an action brought by the bank on the basis that Community had required them to execute the guaranties solely because they were married to their respective husbands. They claimed that this requirement constituted discrimination against them on the basis of their marital status, in violation of the ECOA.. the federal district court concluded that the spouses were not “applicants” within the meaning of the ECOA and thus that Bank had not violated the ECOA by requiring them to execute the guaranties. Accordingly, the district court granted summary judgment in favor of the Bank on the ECOA claim and on the ECOA-based affirmative defense to the Bank’s breach-of-guaranty counterclaims.