Equitable Tolling and the Unenforceability of Broad Release Provisions in Reverse Redlining Cases: A New Precedent

Equitable Tolling and the Unenforceability of Broad Release Provisions in Reverse Redlining Cases: A New Precedent

Introduction

The judgment in Saint-Jean et al. v. Emigrant Mortgage Company, Emigrant Bank et al. issued by the United States Court of Appeals for the Second Circuit on February 19, 2025, establishes significant new legal precedents in several important areas. At its core, the case addresses claims by eight Black homeowners alleging that the defendant lending institution engaged in reverse redlining—predatory mortgage lending practices that targeted predominantly Black and Latino communities. The appeal involved complex issues surrounding the timeliness of claims under federal and state statutes, the application of equitable tolling (as well as the discovery rule), the adequacy of jury instructions regarding disparate impact and disparate treatment theories of discrimination, and the enforceability of a release-of-claims provision contained in a modification agreement.

The parties in this dispute include the plaintiffs, a group of minority homeowners (and in one instance, the administrator of an estate), and the defendants, comprising the lending institution and affiliated entities. The reversal of the mortgage refinancing product called the STAR NINA program—characterized by “no income, no asset” requirements and a concealed, punitive default interest rate—formed the factual backdrop of the case.

Summary of the Judgment

After a detailed review of the district court’s findings—including its treatment of equity tolling and jury instructions—the appellate panel affirmed the district court’s judgment. In its decision, the court upheld three central rulings:

  • The district court correctly found that the plaintiffs’ claims were timely under the doctrine of equitable tolling (and, implicitly, under the discovery rule as it applies to discrimination claims), despite the fact that the causes of action would normally have been time-barred.
  • The instructions given to the trial jurors on both the disparate impact and disparate treatment theories of discrimination were held not to have constituted reversible error.
  • The court agreed that a release-of-claims provision contained in a loan modification agreement signed by two of the plaintiffs was unenforceable as against public policy.

In concluding its opinion, the majority emphasized that the discriminatory scheme embedded in the predatory lending practice was both “sophisticated” and “systemic,” thereby justifying the tolling of the limitation periods until the plaintiffs became aware of the underlying racial targeting.

Analysis

Precedents Cited

The judgment relies on seminal precedents from both the Second Circuit and the Supreme Court. Notably:

  • Inclusive Communities v. Project, Inc. – This case supports the acknowledgment of disparate impact claims, articulating that a facially neutral practice can be challenged if it results in a disproportionate adverse impact on minority groups.
  • Triolo v. Nassau County – The case was cited regarding the evidentiary standard where appellate courts construe evidence in favor of the prevailing party.
  • Several decisions such as Hargraves v. Cap. City Mortg. Corp. and related reverse redlining cases underscore that predatory loan practices targeting minority communities are well recognized as violations of the Fair Housing Act.
  • Cases discussing equitable tolling—including Doe v. United States and Menominee Indian Tribe of Wisconsin v. United States—were crucial to justify tolling of limitation periods when plaintiffs are hindered by the self-concealing nature of discriminatory conduct.
  • Decisions addressing contract enforceability, such as Olin Corp. v. Consol. Aluminum Corp. and PAMPILLONIA v. RJR NABISCO, INC., were instrumental in determining that the release provision in the loan modification was unenforceable due to public policy considerations.

(The dissent, while agreeing on many points, notably challenges the expansive application of equitable tolling and the adequacy of the jury instructions.)

Legal Reasoning

The majority opinion is underpinned by meticulous legal reasoning. At the center is the choice to construe the plaintiffs’ injury as the experience of racial discrimination itself—instead of a mere unfavorable loan—thus justifying a delay in filing under equitable tolling. The court explained that:

  • Equitable Tolling: The court clarified that a statute of limitations may be tolled when a plaintiff, through no fault of their own, is prevented from discovering the discriminatory intent underlying a seemingly ordinary financial transaction. Here, the inherent complexity and the deliberate concealment embedded in the STAR NINA loan documents meant that even diligent borrowers could not have known the full nature of the lender’s discriminatory practices until encountering other similarly situated individuals in foreclosure proceedings.
  • Jury Instructions: Despite contentions by the lender that the instructions on disparate impact and disparate treatment were flawed, the panel found that the instructions—in totality—properly conveyed the law. The charge adequately required the jury to examine whether the lender’s practices resulted in a “substantial adverse” effect on minority borrowers and, even though the dissent argued that a more explicit “disproportionate” comparative standard was needed, the majority held that the overall context of the instructions sufficed.
  • Release-of-Claims Provision: The court held that contractual clauses that broadly waive rights to seek redress in the context of residential mortgage loans contravene both federal law and New York state public policy, which strongly favors non-discriminatory access to housing and credit. The court’s decision to render this waiver unenforceable signals a reaffirmation of the principle that settlements cannot immunize lenders from liability for systematic discriminatory practices.

Impact on Future Cases and the Area of Law

This judgment sets several potentially far-reaching precedents:

  • It arguably lowers the threshold for applying equitable tolling in discrimination claims, specifically when the discriminatory act is inherently concealed by the defendant’s conduct. Future cases involving plaintiffs who discover systemic discrimination years after the purported injurious conduct may rely on this analysis.
  • By affirming the unenforceability of broadly drawn release provisions in mortgage modifications, the judgment may deter lenders from seeking comprehensive waivers that attempt to foreclose future statutory claims. This reinforces public policy in favor of ensuring that victims of discriminatory lending practices retain the right to litigate.
  • The decision also underscores a continued and robust judicial recognition of reverse redlining as a violation of the Fair Housing Act. Lenders, especially those targeting minority communities, will now be more closely scrutinized under both disparate impact and disparate treatment frameworks.

Complex Concepts Simplified

Some aspects of the judgment involve intricate legal doctrines. Here is a simplified explanation:

  • Equitable Tolling: This doctrine allows courts to pause the running of the statute of limitations if the plaintiff, though acting diligently, was misled or prevented by extraordinary circumstances (in this case, the self-concealing nature of discriminatory practices) from discovering their legal rights.
  • Reverse Redlining: Unlike traditional redlining (where lenders avoid minority neighborhoods), reverse redlining involves deliberately targeting minority communities with predatory loans that are designed to fail. This case confirms that both theories fall within the ambit of discriminatory practices prohibited under federal law.
  • Jury Instruction on Disparate Impact: The instruction’s goal is to remind the jury that even if a lender does not intend to discriminate, its neutral practices can have harsh effects on certain racial groups. The jury is directed to compare the impact on minorities with that on other groups—even if the language in the instructions appears less explicit than some commentators would prefer.
  • Release-of-Claims Provision: Lenders sometimes include a clause in loan modifications that requires borrowers to give up any future claims against the lender. However, when such a waiver is so broad that it prevents recovery for discriminatory lending practices, courts will likely find such provisions contrary to public policy.

Conclusion

The Second Circuit’s decision in this case is significant in multiple respects. It reinforces the availability of equitable tolling in instances where systemic and self-concealing discriminatory practices delay a plaintiff’s knowledge of their wrongful treatment. It affirms that jury instructions, when viewed in context, do not need to list every detail explicitly—as long as the overall charge properly guides jurors in comparing adverse impacts across groups. Moreover, by striking down the broad release provision in the loan modification agreement, the court signals that public policy considerations in housing and lending take precedence over contractual waivers.

In sum, this judgment not only vindicates the rights of the plaintiffs in a reverse redlining context but also establishes new legal precedents that will likely influence future discrimination litigation in the mortgage lending arena. The decision serves as both a warning to predatory lenders and a banner of hope for those who have been systematically targeted based on race.

Case Details

Year: 2025
Court: United States Court of Appeals, Second Circuit

Judge(s)

CHIN, CIRCUIT JUDGE:

Attorney(S)

LILA R. MILLER (Tara K. Ramchandani, Yiyang Wu, Edward K. Olds, on the brief), Relman Colfax PLLC, Washington, DC; and Rachel Geballe, Brooklyn Legal Services, Brooklyn, NY, on the brief, for Plaintiffs-Appellees. MATTHEW A. SCHWARTZ (Richard H. Klapper, on the brief), Sullivan &Cromwell, LLP; and Evandro C. Gigante, Proskauer Rose LLP, New York, NY, on the brief, for Defendants-Appellants. LAUREN GORODETSKY, Counsel (Steven Y. Bressler, Deputy General Counsel, Christopher Deal, Assistant General Counsel, on the brief), for Seth Frotman, General Counsel, Consumer Financial Protection Bureau, Washington, DC, for Amicus Curiae Consumer Financial Protection Bureau, in support of Plaintiffs-Appellees. Barbara D. Underwood, Solicitor General, Ester Murdukhayeva, Deputy Solicitor General, Anthony R. Raduazo, Assistant Solicitor General, New York, NY, for Amicus Curiae Letitia James, Attorney General for the State of New York, in support of Plaintiffs-Appellees. Jeffrey Gentes, Stuart Rossman, Anika Singh Lemar, Pamela Heller, Theresa Dudek, Attorneys; Sydney Brun-Ozuna, Alexander Emmons, Student Attorneys, for Amicus Curiae Connecticut Fair Housing Center, National Consumer Law Center, and the Housing Clinic of Jerome N. Frank Legal Services Organization at Yale Law School, in support of Plaintiffs-Appellees.

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