On April 28, 2006, an African-American homeowner represented by private counsel filed this suit in the U.S. District Court for the Western District of Tennessee against Novastar Mortgage under 42 U.S.C. §§ 1982 and 1983, the Fair Housing Act (FHA), 42 U.S.C. § 3601 et seq., and the Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 1691.

The plaintiff, acting individually and on behalf of a putative class of all protected racial groups who entered into residential mortgage loans with Novastar, sought injunctive relief, declaratory relief, and damages. The plaintiff claimed that Novastar discriminated against minority borrowers through predatory lending. Specifically, the plaintiff alleged that Novastar engaged in racially discriminatory conduct by targeting undereducated minorities and providing subprime loans to them with interest rates and terms dissimilar to those provided to similarly-situated white borrowers. The plaintiff further alleged that Novastar set interest rates based on the perceived financial sophistication of the borrower rather than the risk of extending the loan, and that it encouraged discriminatory conduct by offering its brokers financial incentives to secure these higher interest rates.

Novastar filed a motion to dismiss, which the District Court (Judge Bernice B. Donald) denied on December 20, 2007, holding that the plaintiff had standing to bring the suit and had sufficiently stated all of her claims. Jackson v. Novastar Mortgage, Inc., 645 F. Supp. 2d 636 (W.D. Tenn. 2007). Novastar appealed this decision to the Sixth Circuit on August 1, 2008.

Meanwhile, on September 12, 2008, one of Novastar's creditors filed an involuntary bankruptcy petition against Novastar in the U.S. Bankruptcy Court for the District of Delaware. In Re: Novastar Mortgage Inc., 1:08-BK-12125 (Bankr. Del. 2008). Under the federal bankruptcy code, the filing of a bankruptcy petition automatically stays other actions against the debtor.

Consequently, pending resolution of the bankruptcy proceeding in Delaware, the plaintiff in this case was statutorily barred from pursuing her discrimination action against Novastar. On this basis, the Sixth Circuit Court of Appeals (Judges Keith, Cole, and Cook) denied Novastar's petition, and the District Court (Judge Donald) administratively closed the case on December 23, 2008. In its order, however, the District Court emphasized that the parties could easily reopen the case upon resolution of the Delaware bankruptcy litigation. Nevertheless, as of June 15, 2015, the case remains closed, though the bankruptcy action ended in March 2009.

Robert Lake - 06/15/2015


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