RICHMOND, Va.--The U.S. Court of Appeals for the Fourth Circuit on Monday revived part of a discrimination lawsuit against Navy Federal Credit Union, ruling that a lower court moved too quickly in barring class claims before discovery, Law360 reported.
In a split decision, the panel’s majority vacated part of U.S. District Judge Leonie M. Brinkema’s 2024 ruling that had barred Laquita Oliver and eight other plaintiffs from pursuing their discrimination claims as a class. The majority said that although differences in loan products and borrower circumstances justified rejecting a damages class at the pleading stage, allegations that Navy Federal used a uniform underwriting algorithm could still support a class seeking injunctive relief, Law360 said.
"We hold that the complaint contains a sufficient prima facie showing to establish commonality and that the district court acted prematurely in concluding otherwise," U.S. Circuit Judge Toby Heytens wrote for the majority.
U.S. District Judge Norman K. Moon, sitting by designation, fully joined the majority, while U.S. Circuit Judge Julius Richardson issued a partial dissent, saying Judge Brinkema had “permissibly struck all the class allegations,” Law360 said.
"When the deficiency of a proposed class is apparent from the face of the pleadings such that further factual development would be of doubtful use, a district court is not required to sit on its hands. It may instead strike class allegations immediately," according to the dissent.
Oliver and other borrowers sued Navy Federal in December 2023, alleging violations of the Fair Housing Act and the Equal Credit Opportunity Act and claiming the credit union “systemically discriminates” by disproportionately denying mortgages to non-White applicants, Law360 reported.
The suit followed a 2023 CNN analysis that found Navy Federal had the largest gap in approval rates between Black and White applicants among the 50 largest U.S. lenders by volume, according to Law360.
Navy Federal — the nation’s largest credit union with nearly $200 billion in assets and 15 million members — denied the allegations. A spokesperson told Law360: “The Fourth Circuit was required to take plaintiffs’ allegations as true, and we look forward to demonstrating their claims are false. As a leading mortgage lender to Black Americans and all members, we remain confident in the integrity of our mortgage lending practices.”
Plaintiffs’ counsel from DiCello Levitt LLP, Tycko & Zavareei LLP and Ben Crump Law PLLC praised the ruling as a “significant” win for minority borrowers, Law360 said. They added: “The apparent disparate impact caused by Navy Federal’s mortgage lending policies was striking — Black and Brown Navy Federal borrowers have been denied home mortgages far more often, and charged significantly higher rates, than similarly-situated White home applicants.”
They also said: “The Fourth Circuit recognized that courts should not shut down class allegations in cases like this before plaintiffs have any opportunity to access the evidence," the attorneys added. "We look forward to returning to the district court and seeking injunctive relief for the entire class."
The Fourth Circuit partially reversed Judge Leonie Brinkema’s May 2024 ruling that had narrowed the case and struck the borrowers’ proposed national class of “minority residential loan applicants,” which plaintiffs said could number in the thousands, Law360 reported. Brinkema had said individual application circumstances were “so varied” that class claims should be dismissed to “promote the efficient use of resources.”
On appeal, the majority said class claims can be rejected pre-discovery only when Rule 23 standards fail as a matter of law. It agreed a damages class under Rule 23(b)(3) could not proceed but allowed a potential injunctive-relief class under Rule 23(b)(2), based on allegations that Navy Federal used a single, uniform underwriting algorithm across loan products, Law360 said.
As Judge Toby Heytens wrote, while discovery could show the process was not uniform or did not cause racial disparities, “that is not the question at this stage.”