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)

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!
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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