Sisemore v. Master Financial, Inc.

60 Cal.Rptr.3d 719

151 Cal.App.4th 1386

Kim SISEMORE et al., Plaintiffs and Appellants, v. MASTER FINANCIAL, INC., et al. Defendants and Respondents.

No. H029138.

Court of Appeal, Sixth District.

June 12, 2007.

Kerstin Arusha, Moses Diaz, Fair Housing Law Project, San Jose, for Plaintiff and Appellant Sisemore.

Christopher Brancart, Elizabeth Brancart, Brancart & Brancart, for Plaintiff and Appellant Project Sentinel, Inc.

The Law Offices of David Sturgeon-Garcia, San Francisco, for Defendants and Respondents.

DUFFY, J.

We address here whether a licensed family day care home operator who allegedly suffered discrimination in applying for a home loan may state a legally cognizable claim for discrimination under the Fair Employment and Housing Act (FEHA), Government Code section 12955 et seq.¹ The day care home operator claims, inter alia, that the lender's action violated FEHA because it (1) constituted intentional discrimination on the basis of the borrower's source of income, and (2) had the effect of discriminating against women and families with children.

Plaintiff and appellant Kim Sisemore (Sisemore), the mother of a young child, is a licensed operator of a family day care home. She sought a mortgage loan from defendant and respondent Master Financial, Inc. (Master Financial) to facilitate her purchase of a San Jose home. She was turned down; Master Financial stated in writing that it "does not lend on day care homes." Shortly thereafter, plaintiff and appellant Project Sentinel, Inc., a nonprofit fair housing organization (Project Sentinel), obtained written, confirmation from Master Financial that it "will NOT make loans with home day care if the home day care income is required to qualify."

Sisemore brought suit against Master Financial and two of its employees; Project Sentinel later joined in the suit as a plaintiff.² They contended, among other things, that Master Financial's policies were in violation of FEHA. More specifically, plaintiffs asserted that Master Financial (1) had intentionally discriminated on the basis of the source of income of the loan applicant in violation of section 12955, subdivision (e); and (2) was liable under FEHA because its lending policy had a disparate impact on Sisemore and other family day care home operators in that it disproportionately excluded women and families with children, thereby violating sections 12955, subdivision (e), and 12955.8, subdivision (b). The demurrer to the second amended complaint (Complaint) was sustained without leave to amend by the court below, and plaintiffs appeal from a judgment that we deem to have been entered on that order. (See Discussion, pt. II, post.)

We consider on appeal whether a source-of-income discrimination claim under FEHA applies only in the landlordtenant context (as the court concluded below). We also consider whether plaintiffs' disparate impact claim is viable, or, as Master Financial urges, is not maintainable because family day care home operators are not among a class of persons protected under FEHA. Further, we evaluate the viability of Sisemore's claims of discrimination under the Unruh Civil Rights Act (Unruh Act or Act) (Civ.Code, § 51 et seq.); of unlawful or unfair business practice under the Unfair Competition Law (UCL) (Bus. & Prof.Code, § 17200 et seq.); and of violating Health and Safety Code section 1597.40. We also consider whether Project Sentinel had standing to allege a FEHA claim.

We conclude after de novo review that the lower court properly sustained without leave to amend the demurrer to the first cause of action for violation of Health and Safety Code section 1597.40. The court, however, erred when it sustained the demurrer to the fourth cause of action for violation of the Unruh Act. Further, the court should have overruled the demurrer to the (FEHA) third cause of action. Plaintiffs have stated a claim for intentional source-of-income discrimination under FEHA; section 12955, subdivision (e) cannot be read so narrowly as to make it applicable only to tenants or potential tenants seeking rental housing. Plaintiffs have further stated a FEHA claim for disparate impact discrimination. Moreover, we hold that Project Sentinel alleged sufficient facts for standing to assert a FEHA claim. Finally, we conclude that Sisemore has stated a viable claim under the UCL (second cause of action). Accordingly, we will reverse.

FACTUAL BACKGROUND

The following material facts—which this court accepts as true for purposes of evaluating the trial court's ruling on demurrer (Searle v. Wyndham Internal, Inc. (2002) 102 Cal.App.4th 1327, 1330, fn. 1, 126 Cal. Rptr.2d 231)—are alleged in the Complaint:

Sisemore is a licensed operator of a family day care home for 14 or fewer children. The principal source of her income is from her operation of the family day care home. Sisemore has custody and care of her three-year-old daughter.

In June 2003, Sisemore — while she was renting the home out of which she operated her day care business—contacted Nikki Caster, a loan processor, to assist in obtaining a loan to purchase a home. Caster in turn contacted Colleen Brehm, a representative of Master Financial; she explained Sisemore's financial circumstances to Brehm, including the fact that Sisemore was then renting a home and that the principal source of her income was the operation of a day care home. Brehm informed Caster that Sisemore could qualify for a particular loan product that Master Financial offered. That product consisted of a loan secured by a first deed of trust at an interest rate starting at 5.24 percent, and a loan secured by a second deed of trust at an interest rate starting at 9.99 percent. Brehm did not tell Caster or Sisemore that a term of the home loan prohibited Sisemore from using her intended home as a family day care operation.

In August 2003, Sisemore located a home in San Jose that she wanted to purchase; she intended to reside in it with her daughter, and to operate a day care business. Caster informed Brehm about the property. Brehm told Caster that the interest rate on the first loan had increased to 5.74 percent but that the terms were otherwise the same as previously discussed. Based upon this understanding, Sisemore submitted an offer to purchase the home that was accepted. During the escrow process, Master Financial sent a letter denying Sisemore's loan application, stating that it "does not lend on day care homes." As a result of this denial, Sisemore was required to seek and obtain an alternative home loan with less attractive rates and terms than the loans she had anticipated receiving from Master Financial.

In July 2004, a female Project Sentinel employee, who posed as a licensed home day care operator (a "tester"), contacted Master Financial to inquire about qualifying for a home loan. Andy Vargas, an area sales manager of Master Financial, advised her by e-mail that Master Financial "will NOT make loans with home day care if the home day care income is required to qualify."

PROCEDURAL BACKGROUND

Sisemore filed her original complaint on August 20, 2004, against Master Financial, Vargas, and Brehm. Thereafter, Sisemore, along with Project Sentinel, filed a first amended complaint. Master Financial filed a demurrer and motion to strike relative to the first amended complaint.³ The court in large part sustained the demurrer with leave to amend.

Sisemore and Project Sentinel filed the Complaint on or about March 24, 2005. Master Financial filed a demurrer and motion to strike. The court sustained without leave to amend the demurrer to the first through fourth causes of action of the Complaint.⁴ Sisemore and Project Sentinel filed separate timely appeals from the order.⁵

DISCUSSION

I. Issues on Appeal

The following issues are presented in this appeal:

1. Whether Master Financial's alleged policies constituted a prohibition or restriction "on the use or occupancy of property as a family day care home, such that Sisemore stated a claim for a violation of Health and Safety Code section 1597.40.

2. Whether Sisemore stated a cause of action for violation of the Unruh Act (Civ. Code, § 51).

3. Whether plaintiffs stated a claim for intentional discrimination based upon source of income under FEHA (§ 12955 et seq.).

4. Whether plaintiffs stated a claim for disparate impact discrimination under FEHA, because Master Financial's policies had a disproportionate effect on women or families with children.

5. Whether Project Sentinel alleged sufficient facts for standing to assert a FEHA claim.

6. Whether Sisemore stated a cause of action under the UCL (Bus. & Prof.Code, § 17200).

II. Appealability

We are confronted initially with' whether the matter from which the appeals have been taken is properly appealable. Although Master Financial here does not argue that plaintiffs' separate appeals are defective because they challenge a nonappealable order, we cannot overlook this potential procedural infirmity: "The existence of an appealable judgment is a jurisdictional prerequisite to an appeal. A reviewing court must raise the issue on its own initiative whenever a doubt exists as to whether the trial court has entered a final judgment or other order or judgment made appealable by Code of Civil Procedure section 904.1. [Citations.]" (Jennings v. Marralle (1994) 8 Cal.4th 121, 126-127, 32 Cal.Rptr.2d 275, 876 P.2d 1074.) Since this issue is central to our jurisdiction, we address it on our own motion. (Olson v. Cory (1983) 35 Cal.3d 390, 398, 197 Cal.Rptr. 843, 673 P.2d 720; Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 436,129 Cal.Rptr.2d 436.)

The purported appeals taken by plaintiffs were from the order sustaining the demurrer. The record does not reflect the entry of a judgment or a dismissal on the demurrer order. An order sustaining a demurrer without leave to amend is not appealable, and an appeal is proper only after entry of a dismissal on such an order. (Berri v....