Daily Development for Tuesday, October 26, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu
BROKERS; FAIR HOUSING; OWNER/BROKER LIABILITY FOR AGENT’S ACTS: Despite
overruling by U.S. Supreme Court, Ninth Circuit identifies additional bases for
finding owner/broker liable for discriminatory housing acts by sales associate.
Holley v. Meyer, 04 C.D.O.S. 9533, No 99-56611 (9th Cir. 10/26/04)
http://www.law.com/jsp/ca/LawDecisionCA.jsp?id=1098804610975
This case orginated in a claim by a biracial couple and a builder that a real
estate agent working for Triad Realty committed violations of the Federal Fair
Housing Act in refusing to submit the buyers’ offer to the builder for racially
discriminatory reasons. Triad was owned by Meyer, who was also the designated
supervising broker (known in California speak as the “designated officer”) for
the agency,
In Meyer v. Holley, 537 U.S. 280 (2003), the Supreme Court reversed and vacated
a prior Ninth Circuit decision in this case and held, contrary to the Ninth
Circuit’s view, that liability would not lie against the owner/broker for the
agent’s actions on the basis that the duty to obey laws relating to racial
discrimination under the FHA is non-delegable. The Supreme Court also found that
Meyer could not be held liable as the designated officer/broker of Triad based
solely on his duty to control the agent. The Supreme Court remanded, however,
for further discussion of issues of California law relating to vicarious
liability and (in the eyes of the Ninth Circuit at least) other liability
theories. The Ninth Circuit here serves up a whole passel of such additional
theories and remands for further proceedings at the District Court level to
evaluate the facts relating to such theories.
With a little fancy footwork, the Ninth Circuit panel first determined that the
plaintiffs preserved the claim that Meyer was liable under traditional state law
vicarious liability theories even though they had pressed their original appeal
based upon HUD regulations.
The court then held that certain special facts pertaining to Meyer’s
relationship to the agent in question raised significant issues of fact as to
whether Meyer had delegated his duty to supervise agents in the office to the
offending sales associate, who was in fact a senior sales associate in the
office. This special theory of delegation arose because Meyer had not been
personally present at the office on a regular basis, because he had elected to
pursue other business ventures, and in fact Meyer was anticipating that the
agent in question would soon get a brokers license and undertake supervision of
the office and ownership of Triad. In the interim, although Meyer as not present
at the office, it worked pursuant to Meyer’s license. The court noted that
California law requires that an individual brokerage licensee have personal
supervisory responsibility over sale associates, and that the corporation, even
though licensed, cannot itself have that responsibility. As the!
offen
ding agent was supervising the sales activities of another, junior, agent, when
the acts of discrimination occurred, the FHA violation was within the scope of
the delegation, and Meyer therefore was liable under traditional agency
principles.
The other two bases that the court posited for Meyer’s liability for the acts of
the offending sales associate are more generally applicable. First, the court
recognized liability might lie on the basis of negligent supervision. (Such a
claim doesn’t quite fit within the notion of “vicarious liability,” but rather
would appear to be a separate and independent tort. The court again uses fancy
footwork in holding that the claim was preserve on appeal, although apparently
not argued. But it also refers to the theory as one of “vicarious liability.”)
Certainly, if Meyer in fact had a duty to supervise and was not supervising
while he was pursuing other business and leaving the office unsupervised by a
properly licensed broker, this would appear to be a viable claim.
The third theory of liability posited by the court is the notion that Meyer
would be liable for the acts of Triad’s employees because he was the owner of
Triad. Although Triad was a corporation, which would preclude individual
liability, the court suggests that California law would recognize certain
factors in this case which would support “piercing the corporate veil” to
justify disregarding the employer’s corporate status and impose liability
directly on the corporate owner.
Here, the court states, the allegations in the complaint suggested that Meyer
had “wide ranging control” of Triad as its owner, president and designated
officer/supervising broker. The court further notes that Meyer did not always
punctiliously observe corporate niceties. For instance, Meyer paid Triad’s taxes
pursuant to his own tax ID number instead of under Triad’s. Further, the
corporation was thinly capitalized. That was enough for the court to remand for
a determination on the issue of “piercing the corporate veil” and sticking Meyer
with liability for all sales associate acts in violation of the Fair Housing
Act. One problem for the plaintiffs on this theory is that, at the time of the
FHA violations, Meyer may already have transferred ownership of Triad to the
sale associate he was grooming to take over.
Comment 1 : The Ninth Circuit was obviously hungry for blood here, but its
description of the various bases by which the owner/broker of this agency might
be held liable for the acts of sales associates in violating the Fair Housing
Act are really pretty straightforward and hard to argue with in theory. The
“triple whammy” here will almost assure that this case and most other FHA cases
will survive summary judgment and get to a jury. Particularly the recognition of
liability based upon failure to properly supervise is such a fact intensive
question that it can easily be pled and will be almost impossible to overcome on
summary judgment.
The bottom line is that supervising brokers, their agencies and insurers ought
to prepare for a lot more expensive defenses in the Ninth Circuit, and possible
elsewhere. The best defense, of course, is a good offense. Educate regularly and
intervene at the first sign of racist attitudes, even where the salespeople in
question are perennial Million Dollar Roundtable types. That million dollars may
otherwise be outgoing rather than incoming.
Comment 2: The court’s analysis of the “piercing the corporate veil” issue is
very, very sketchy. The editor’s contacts in the corporate community report that
the concept of thin capitalization is a very uncertain notion and that it is
rarely a strong basis for concluding that the corporate status should be
disregarded. Aside from the one gaff regarding the use of the wrong number for
payment of taxes, the court really cites to very little else that would justify
disregarding corporate status. Meyer was sole shareholder, president, and
designated officer. One would anticipate that the same would be true in many
small brokerage offices and the same would also be true for many small business
across the nation. To we pierce the veil on this basis alone? As the editor
understands things, this is not the way the doctrine is supposed to work. It is
true that it is harder to separate corporate acts from individual acts when one
is running the show, and the symbolic and techn!
ical a
spects of corporate status thus gain greater significance. But the court does
not detail what breaches of corporate management Meyer committed, so it is
impossible to fully evaluate the concept here. Is it possible that this, too,
will go to the jury? Again a difficult spot for a small business owner to be in.
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