Judge Orders 1st Alliance Not to Engage in Redlining

A judge Thursday ordered First Alliance Mortgage not to violate the state law against racial discrimination in real estate lending but declined to put a receiver in control of the Orange-based firm “at this stage.”

Both sides promptly claimed a victory after the interim rulings in the landmark civil enforcement case, filed Aug. 10 under the 1977 Holden Act, which bars such discrimination. While contending that the preliminary injunction granted by the judge will not affect the company because it “doesn’t discriminate,” the defense said it would appeal the order.

The company’s lawyer called the rejection of a receivership “a colossal defeat” for the state Department of Corporations, whose lawyer called the injunction a “vindication” and a victory that “will help” consumers.

In rejecting the state’s plea for a receiver, Los Angeles County Superior Court Judge Robert M. Mallano said that would have been “too drastic a remedy” without giving the defendants a chance to comply with the injunction.

Although he said he does not believe that appointment of a receiver would be appropriate “at this time,” Mallano left the door open for the state to seek court appointment of a monitor to check on the company’s compliance with the law. The Corporations Department said it will probably take that step in the near future.

Described Practices

Mallano said he had found sufficient cause to grant a preliminary injunction. However, he did not make a final determination on the suit’s allegations, as the case has not yet come up for a full trial “on the merits.” The judge will keep jurisdiction of the matter until it comes to trial, which probably will not be before next year.

The judge said he based his injunction on declarations by six former First Alliance employees who had described a variety of First Alliance business practices that allegedly discriminated against blacks.

These alleged practices included the citing of census tract information about the racial makeup of largely black neighborhoods on loan applications, using it as a basis for banning loans to blacks or to charge them especially high interest rates and fees. The company, which has eight offices statewide, denied the allegations.

After the judge outlined his intended ruling, state lawyer Robert N. Kwong argued that the department still needs “someone to look over the shoulder of management” in light of evidence that the firm is only being “more covert in their activities.”

“Redlining is so easy to hide,” Kwong added, saying that the only reason the state was able to bring its first case under the 1977 Holden (anti-redlining) Act was that “conscientious” former employees came forward.

No ‘Current Violation’

However, Mallano said he is not in the habit of issuing orders “with the idea I can’t enforce them,” adding: “If (the defendants) don’t follow the law, then I’ll get after them.”

The firm’s attorney, Paul J. Hall, told the court several times that there is no evidence of any “current violation” and said allegations to the contrary were “irresponsible.”

Mallano took no action on a Corporations Department request to force the company to “disgorge” various fees and to reimburse borrowers who allegedly were overcharged. Therefore, Kwong told reporters after the hearing, persons already doing business with the firm would need to pursue any legal remedies with their own lawyers.

The judge’s injunction also did not cover allegations by the state that the company had violated securities laws by concealing certain lending practices. The company finances its loans largely with money raised from public investors. The court also ruled that the state may not enforce a “blanket” ban on the company’s advertising, a ban that the Corporations Department issued in August.