(CN) – The Fourth Circuit revived a lawsuit filed by a black-owned television ad agency that claimed a North Carolina city refused to consider it for an economic development loan unless it agreed to conditions not placed on white-owned businesses.
In the underlying lawsuit, plaintiffs Michael and Ramona Woods, owners of the BNT Ad Agency, claimed that Greensboro, North Carolina, refused to approve them for a $300,000 economic development loan because city officials view black-owned businesses as being at a higher risk of defaulting than white-owned businesses.
U.S. District Judge William Osteen dismissed the lawsuit, finding the plaintiffs’ claims implausible.
But a divided three-judge panel with the Richmond, Virginia-based federal appeals court reversed, saying the “District Court’s crabbed plausibility analysis misrepresented and misapplied the controlling pleading standard.”
As recounted in the ruling, in May 2013, the Woods offered the city a secured loan with a note and deed of trust to their home which was valued at $975,000 with “equity well over $300,000 loan, after consideration of all existing loans on the residence.” In June 2013 the city adopted a resolution that stated the city would be in the second lien position on the residence being used as collateral.
The city then did a tile search on the property and found a home equity line of credit had been taken out on it.
The plaintiffs contend city officials initially agreed to amend the resolution, placing Greensboro in the third lien position, but the city council refused to amend the resolution and instead revoked it.
The Woods sued for breach of contract, civil conspiracy, unfair trade and deceptive trade practices. The complaint alleges the city’s denial of the loan is a part of a larger discriminatory pattern in the city’s lending of economic development funds.
According to the complaint a 2012 study revealed that only 2 percent of the city’s economic development loans are disbursed to minority businesses when blacks make up 40 percent of the city’s population.
Also, the city moved from being a position of a second lien to a third one in other cases involving white-owned businesses and granted a 20 year, $1.2 million loan to a white-owned business that had two defaults in its past. The plaintiffs maintain their business presented no history of risk.
The Fourth Circuit found the Woods offered sufficient factual allegations to support a plausible claim that the city acted pretextually on basis of insufficient security from moving the city from the position of the second lien to the third one.
Senior U.S. Circuit Judge Andre Davis signed the lead opinion, with U.S. Circuit Judge J. Harvie Wilkinson III dissenting. “If ever there were a case that failed to satisfy the plausibility standard on a Rule 12(b)(6) motion to dismiss, it is this one,” Wilkinson wrote.
“BNT presents nothing more than bare speculation that racial discrimination influenced the City’s treatment of its loan application,” Wilkinson continued. “To the contrary, the minority-owned status of the business motivated the City to extend the loan in the first place. The complaint manifests that nothing but prudent, neutral, non-racial lending practices were at issue here. The dismissal was absolutely justified and I would affirm the district court.”
A representative of the Greensboro city government did not respond to a phone call seeking comment.