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Woods v. City of Greensboro

United States Court of Appeals, Fourth Circuit

May 5, 2017

MICHAEL WOODS; RAMONA WOODS; BNT AD AGENCY, LLC, Plaintiffs - Appellants,
v.
CITY OF GREENSBORO, a municipality; NANCY VAUGHAN, in her official capacity; ZACK MATHENY, In his official capacity; MARIKAY ABUZUAITER, in her official capacity; T. DIANE BELLAMY-SMALL, in her official capacity; TONY WILKINS, in his official capacity; NANCY HOFFMAN, in her official capacity, Defendants-Appellees.

          Argued: March 23, 2017

          Appeal from the United States District Court for the Middle District of North Carolina, at Greensboro. William L. Osteen, Jr., Chief District Judge. (1:14-cv-00767-WO-JEP)

         ARGUED:

          Mark Lowell Hayes, LAW OFFICE OF MARK L. HAYES, Durham, North Carolina, for Appellants.

          Patrick Michael Kane, SMITH MOORE LEATHERWOOD LLP, Greensboro, North Carolina, for Appellees.

         ON BRIEF:

          Bruce P. Ashley, SMITH MOORE LEATHERWOOD LLP, Greensboro, North Carolina; John Roseboro, GREENSBORO CITY ATTORNEY'S OFFICE, Greensboro, North Carolina, for Appellees.

          Before GREGORY, Chief Judge, WILKINSON, Circuit Judge, and DAVIS, Senior Circuit Judge.

         Reversed and remanded by published opinion. Senior Judge Davis wrote the majority opinion, in which Chief Judge Gregory joined. Judge Wilkinson wrote a dissenting opinion.

          DAVIS, Senior Circuit Judge:

          Racial stigmas and stereotypes are not impairing unless we internalize them. And there is no reason for us to do that when we know that the history of black culture in America is rich and reaffirming. We may live in a society that will only grudgingly and inconsistently acknowledge our equality, but that does not mean that we must live as if we are victims. I understand that avoiding the effects of racial stigmas and stereotyping is not always easy because many studies have shown that most people harbor implicit biases and even well-intentioned people unknowingly act on racist attitudes. However, this merely confirms that we alone cannot carry the burden of ameliorating racism in our country. This responsibility must be assumed by all good people without regard to race, sex, and ethnicity. [1]

         This appeal requires us to consider whether it is plausible to believe that, in twenty-first century America, a municipal government may seek to contract with a minority-owned enterprise under some conditions, yet, on account of race, avoid contracting with a minority-owned company under other conditions.

         In April 2013, Black Network Television Ad Agency, LLC ("BNT"), a minority-owned television network, was granted and then subsequently denied a $300, 000 economic development loan from the City of Greensboro, North Carolina ("the City"), prompting BNT to file this action asserting a claim, among others, for racial discrimination pursuant to 42 U.S.C. § 1981. The City argued, in support of its motion to dismiss the complaint for failure to state a claim upon which relief could be granted, that its willingness to grant BNT a loan fully secured by a second-position lien on the personal residence of BNT's principals, notwithstanding its unwillingness to grant BNT a loan fully secured by a third-position lien on that residence, foreclosed a claim of race discrimination as a matter of law. BNT responded that, to the contrary, the City's refusal to make the loan was based upon stereotypes about the risk of lending to a minority business and that, at the pleading stage, its allegations suggesting the pretextual character of the City's explanation for the denial of the loan are sufficient to survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). The district court agreed with the City's arguments, concluded that BNT's factual allegations were so insubstantial as to render its claim implausible, and therefore dismissed the complaint with prejudice.[2]

         We hold that the district court's crabbed plausibility analysis, see Woods v. City of Greensboro, No. 1:14CV767, 2015 WL 8668228, at *8 (M.D. N.C. Dec. 11, 2015), misinterpreted and misapplied the controlling pleading standard. The key issue in this case is not whether the City would contract with a minority-owned business, but whether the City would contract with BNT on the same conditions and under substantially the same circumstances as it would with a nonminority-owned business. Because BNT has plausibly pled that the conditions under which the City was willing to grant it a loan were more stringent than those the City applied to similarly situated white-owned applicants, we conclude that the district court erred in dismissing BNT's claim of discrimination at the pleading stage. Accordingly, for the reasons explained within, we reverse the district court's order dismissing this action and remand for further proceedings.

         I.

         A.

         We begin by summarizing the cardinal facts surrounding BNT's application for, and the City's ultimate denial of, the economic development loan. (Additional factual allegations are discussed infra pp. 15-20.) Throughout, we consider as true all well-pleaded allegations in the complaint, matters of public record, and documents attached to the motion to dismiss that are integral to the complaint and of unquestioned authenticity. Philips v. Pitt Cty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009).

         In April 2013, members of the City's Economic and Business Development Office recommended that Michael and Ramona Woods (referred to by the parties, and hence herein, as "the Woods") submit an application for a $300, 000 ten-year economic development loan for their company, BNT, as part of the City's economic development efforts. The Woods offered to secure the loan by way of a note and deed of trust to their home. On May 28, 2013, L.R. Appraisals, Inc., appraised the home at a value of $975, 000.00 "resulting in equity well over the $300, 000.00 loan, after consideration of all existing loans on the residence." J.A. 14.[3]

         Pursuant to Greensboro Code of Ordinances Section 4.55, the City may make economic development loans only after receiving authorization from its nine-member elected City Council. On June 18, 2013, at a regularly scheduled meeting, the City Council considered a Resolution authorizing the City to enter into a loan agreement with BNT. The Resolution, which was drafted by the Greensboro City Attorney's office, stated that the City's interest would be secured by "no more than a second lien" on the real property and improvements. J.A. 15. Assistant City Manager of Economic Development, Andy Scott, discussed with the City Council in open session the financial statements of the Woods and the collateral requirements of the proposed loan agreement and "stated [to the Council] that the City would be placed in the second loan position on the residence being used as collateral." J.A. 44. The City Council voted seven to two in favor of adopting Resolution 172-13, which authorized the City to enter into an agreement with BNT for the $300, 000 loan. The Resolution provided the following conditions:

WHEREAS, the borrower is required to confirm compliance with the following conditions prior to the City's loan closing to protect the public funds invested in the project; . . .
2) City will complete a title search confirming no additional liens are outstanding on the 5018 Carlson Dairy Road property that will secure the City's loan beyond the first mortgage that is currently outstanding.
. . .
3) City will confirm that the first mortgage balance does not exceed $509, 000.
. . .
8) City loan will be secured by a note and deed of trust with the City's interest secured by no more than a 2nd lien on the real property and improvements located at 5018 Carlson Dairy Road.
. . .
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF GREENSBORO:
The City of Greensboro is hereby authorized to execute the necessary note and agreements with BNT Ad Agency LLC in accordance with the above terms and conditions.

J.A. 92-93.

         As it turned out, in addition to a first mortgage, the Woods had a home equity line of credit on the property. The City informed the Woods that the Resolution would have to be amended to reflect that the City's security interest would be a third lien, rather than a second lien. On July 16, 2013, at a second meeting, the City Council considered modifying the Resolution. According to the minutes, the following occurred:

Assistant City Manager of Economic Development Andy Scott summarized the difference between the approved loan at the June 18 council meeting and the modifications made in the presented resolution; and spoke to the financial assessment of the Woods' collateral in terms of loan repayment.
. . .
Council discussed the capped equity limits by Carolina Bank; referenced three previous loans where the City had been in the third position; the desire to support minority owned small businesses; and concerns expressed about the City going from second to the third position in loan repayment.
City Attorney Shah-Khan advised that if Council chose to move forward with the transaction, it would be necessary to comply with the changes with what Council was now aware of; and stated the decision was a policy matter for Council.
Mayor Perkins stated there were speakers to the item.
George Hartzman . . ., stated there was not enough equity in the property to fund the city's portion of a potentially defaulted loan; and encouraged Council to respect their ...

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