Opinion ID: 778211
Heading Depth: 4
Heading Rank: 1

Heading: Testing evidence

Text: 59 Flagstar contends that the testing evidence should have been excluded pursuant to Rule 402 because it had no probative value on the issue of whether Flagstar discriminated against the plaintiffs in the consideration of their mortgage applications. In the alternative, Flagstar argues that the testing evidence should have been excluded under Rule 403 because it focused on the racially inflammatory conduct of Chet Allen, a Flagstar loan officer who was not involved in the processing of the plaintiffs' applications, and, therefore, the low probative value of the evidence was substantially outweighed by the danger of unfair prejudice. 60 Although the FHC sent ten pairs of testers to Flagstar between July 16, 1994 and March 2, 1995, the plaintiffs offered the results of only three matched-pair tests into evidence. The pairs of testers were named as follows: (1) Selman/Taylor, (2) Jordan/Kisch, and (3) Cox/Chapp. In each case, the first name listed is that of an African-American tester and the second name listed is that of a Caucasian tester. Although the district court preliminarily decided to admit into evidence the results of all three pairs of testers, it later excluded a portion of the evidence related to the Cox/Chapp test as substantially more prejudicial than probative. 61 Clifford Schrupp, the Director of the FHC, gave background information regarding the testing conducted by the three pairs of testers. During his direct testimony, Schrupp stated that the FHC decided to perform the testing after receiving several complaints, including one from the Paschals, about Flagstar. Schrupp noted that the FHC incorporated some of the elements of the various complaints that we had, in particular the Paschals, into the assignments that we then gave to the testers. He also explained why the testers, unlike the plaintiffs, did not fill out loan applications: 62 Q. And in terms of the mortgage testers, do the testers fill out loan applications? 63 A. No, they do not. 64 Q. In a rental test do the testers fill out applications for a rental? 65 A. It's not a routine or normal thing for testers to do, but there have been instances where that has happened. 66 Q. How come — can you explain why applications are not submitted when you do testing of financial institutions? 67 A. An application normally for a financial institution runs 300, 350 dollars, sometimes more. [The FHC is] not funded to be able to put those kinds of investments into, into filling out the application. 68 We also found — we began doing tests of financial institutions in 1984 under a contract that we had with the City of Pontiac, and we found out in that series of tests that we did in 1984 of financial institutions in Pontiac that we could get quite a bit of information about how people are treated and may be treated differently by loan officers before we get to the point of having to fill out a loan application. And so we were satisfied that we could identify quite a bit of information about how somebody is being treated in that early stage, and so for those two reasons we haven't done loan applications or paid — asked our testers to fill out loan applications themselves. 69 Schrupp testified that the three pairs of testers experienced differences in treatment that were potentially attributable to racial discrimination. First, although Selman and Taylor presented similar financial qualifications and each told the Flagstar loan officer that they wanted a house in the Detroit area, they were directed to different neighborhoods. The loan officer suggested that Selman, the African-American tester, should look for a home in a neighborhood, Rosedale Park, that is approximately 75 percent African-American. Taylor, the Caucasian tester, was directed to a neighborhood that is approximately 70 percent Caucasian. Furthermore, the loan officer gave the African-American tester the name of an African-American real estate agent and the Caucasian tester the name of a Caucasian real estate agent. 70 Second, Jordan and Kisch presented similar financial qualifications, and each told the Flagstar loan officer that they wanted a house in Ann Arbor, a predominantly Caucasian community. The loan officer, however, encouraged Jordan, the African-American tester, to consider instead Ypsilanti, which has approximately a 50 percent African-American population. No such suggestion was made to the Caucasian tester. 71 Finally, Cox and Chapp attempted to set up appointments to meet with Chet Allen, the loan officer who was involved in the Selman/Taylor testing. Cox, the African-American tester, visited Flagstar and asked the receptionist if he could meet with Allen. Because Allen was not in, the receptionist asked Cox to leave his name and phone number. Allen called Cox later that day and indicated that he could pre-qualify Cox for a loan over the phone. When Chapp, the Caucasian tester contacted Allen, Allen suggested that he should set up an appointment for a meeting to get more information about a loan. Schrupp testified that the different treatment suggested the possibility of racial bias. 72 Despite Flagstar's claim to the contrary, we do not believe that the district court abused its discretion in finding that the testing evidence was relevant. The plaintiffs have pointed out that the testers were given some of the same financial attributes that the plaintiffs presented to Flagstar. For example, the Jordan/Kisch test involved a Caucasian tester who, like Thomas, worked for a temporary employment agency. The Selman/Taylor and the Jordan/Kisch tests also involved Caucasian testers who, like the Paschals, had a history of bankruptcy. Overall, their experiences suggest that Flagstar might treat African-American and Caucasian customers differently, at least during the preapplication stage. 73 As Flagstar points out, however, Schrupp admitted that the testing was inconclusive on the question of whether Flagstar was less likely to grant a mortgage to an African-American than it was to grant a mortgage to a Caucasian. The fact that this evidence is inconclusive as to the resolution of the ultimate question involved in this trial does not, however, mean that it is irrelevant. If, for instance, the results of the testing had shown that the testing uncovered no evidence of discriminatory treatment in the preapplication stage, Flagstar would likely be arguing that the evidence was relevant to the question of whether it had discriminated against the plaintiffs. The testing evidence, though not strong, possesses a tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence. Fed.R.Evid. 401. We therefore find no abuse of discretion in the district court's determination that the testing evidence was relevant. 74 This brings us to the question of whether the district court abused its discretion by failing to exclude the testing evidence under Rule 403. Flagstar contends that the testing evidence should have been excluded because it focused on the potentially inflammatory conduct of Chet Allen, a Flagstar loan officer who was not involved in processing the plaintiffs' mortgage applications. The bank therefore maintains that the low probative value of the testing evidence was substantially outweighed by the danger of unfair prejudice. But [u]nfair prejudice does not mean the damage to a defendant's case that results from the legitimate probative force of the evidence; rather it refers to evidence which tends to suggest a decision on an improper basis. United States v. Bonds, 12 F.3d 540, 567 (6th Cir.1993) (citation and internal quotation marks omitted). 75 Flagstar argues that the testimony regarding Chet Allen was unfairly prejudicial because it tended to suggest a decision against the bank based on the fact that it employed someone who allegedly had racist views. During Schrupp's testimony regarding the Cox/Chapp test, the following evidence was heard by the jury: 76 Q. Was there anything in the narrative section, Page 2035 through 2039, that raised concerns when you reviewed the testing? 77 A. There were several things in the narrative section, yes. 78 Q. And what were those concerns that you had? 79 A. Well, in the narrative section, Page 2035 near the bottom of the page, there is a discussion reported by Mr. Chapp that he had told [loan officer Chet Allen] that he was looking [for a house] in Farmington. He had been asked by the loan officer where he was looking for housing. He said Farmington, but the prices were too high for him in Farmington. He had previously indicated that he was staying with his son in Southfield, and apparently at that point the loan officer said you don't want Southfield or east Dearborn, [there are] too many Arabs. Instead he suggested Royal Oak, Pleasant Ridge, Huntington Woods. 80 ... 81 Q. I believe you can continue on 2036, the second page of the narrative test form. Just very, very briefly were there any other items that raised concerns? You don't have to read it, but just hit the highlights of it. 82 A. There was a reference to east English Village again, the area where the loan officer lived. He indicated to the tester that it was a nice area, but he would not want his son to go to school there but instead recommended that his son go to schools in the Grosse Pointe area. 83 Q. And I take it there were other statements made? 84 A. Yeah, there were other references in the report form to the Dearborn area and to the fact that Arabs live in Dearborn and other positive references to other communities and in fact references to several real estate agents who might be of assistance to Mr. Chapp. 85 Q. Now, are you familiar with the racial composition or approximate racial composition of the various communities identified by the loan officer? 86 A. Generally, yes. 87 At a side bar conference, the district court described the problem with this line of questioning: You've now got a situation where you've got, in the most extreme terms, a racist loan officer. Well, you can't extrapolate from a racist loan officer institutional racism on the part of the institution. You can't do that. That's not probative of an institutional animus. To the extent that such testimony suggested to the jury an improper basis for its verdict, the evidence was unfairly prejudicial. 88 The question under Rule 403, however, is not simply whether the evidence was unfairly prejudicial. Instead, the testing evidence was subject to exclusion only if its probative value was substantially outweighed by the danger of unfair prejudice. Although admittedly a close question, we are not left with the definite and firm conviction that the trial court ... committed a clear error of judgment in concluding that the probative value of the testing evidence was not substantially outweighed by the danger of unfair prejudice. This is particularly true in light of the fact that [i]n reviewing the trial court's decision for an abuse of discretion, the appellate court must view the evidence in the light most favorable to its proponent, giving the evidence its maximum reasonable probative force and its minimum reasonable prejudicial value. United States v. Schrock, 855 F.2d 327, 333 (6th Cir.1988) (quotation marks omitted). 89 Our conclusion is buttressed by the fact that the district court did exclude two of the exhibits related to the potentially inflammatory Cox/Chapp test. One of these exhibits included test report forms filled out by Chapp and Ratkowski, another Caucasian tester who posed as Chapp's wife, relating to a fair-lending test that they conducted on March 2, 1995. This exhibit described racist statements allegedly made by Chet Allen during the test. The other exhibit was the transcript of a recording that Chapp and Ratkowski made of the same fair-lending test. These exhibits were excluded by the district court because it found that the danger of unfair prejudice substantially outweighed whatever probative value the exhibits might have. This decision demonstrates that the district court was cognizant of the potentially prejudicial impact of the testimony and that it attempted to draw the appropriate balance under Rule 403. The district court's exclusion of the evidence of testing conducted on Flagstar's lending practices in Grand Rapids, Michigan further points out that it was aware of potential limitations on the probative value of testing evidence. 90 In addition, the evidence regarding Allen was most explicit regarding his animus against Arab-Americans, whereas this case involved alleged discrimination against African-Americans. We also note that testing evidence in the context of rental discrimination has long been held admissible under Rule 403 despite the fact that it has some of the same potential limitations on its probative value as in the lending context. Richardson v. Howard, 712 F.2d 319, 321-22 (7th Cir.1983). Finally, we note that the jury returned a verdict in favor of Flagstar as to the claims regarding three of the five sets of plaintiffs. If the unfairly prejudicial effect of the testing evidence had been substantial, the jury would have likely found against Flagstar on all the claims. We will therefore not reverse the district court's judgment or grant Flagstar a new trial on this basis.