Daily Development Tuesday, September 25, 2001

 

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

 

FAIR HOUSING; VICARIOUS CORPORATE LIABILITY:

Corporate owners and officers of real estate agency may be held vicariously liable for employees' violations of Fair Housing Act.

 

Holley v. Crank,  258 F.3d 1127 (9th Cir. 2001).

 

Plaintiffs Holley were an African-American and Caucasian couple who met with defendant Crank, an agent for Triad, a realty company owned by president Meyer, inquiring about listings for purchasing a new home. Later, plaintiffs found a house on their own being sold by plaintiff

 

Bauer, a builder/seller.  The house was listed with another Triad agent.  They spoke to Bauer, who said that their proposals for buying the house sounded reasonable, but that they would have to work things out with Triad.  When Holleys tendered their offer to Triad, Crank, a senior agent in the office, indicated that it was insufficient. indicates.  Holleys then bought a house through another arrangement.  Plaintiff Bauer, however, contacted Triad for an explanation and Crank allegedly used racial epithets in describing that he did not want to deal with plaintiffs Holley. Bauer later sold his house for $20,000 less than Holleys had offered.

 

Holleys and Bauer sued Crank, of course, but included as defendants Triad and Meyer the sole owner of Triad.  In addition, they named Meyer as a defendant in his capacity as supervising broker to Crank.

 

The Ninth Circuit here upheld the dismissal of a summary judgment petition against Meyer in these capacities.

 

The court stated that the duty to obey the laws relating to racial discrimination under the FHA is non-delegable:

 

     "Although under general principles of tort law corporate

     shareholders and officers usually are not held vicariously liable

     for an employee's action, the criteria for the FHA is different as

     liability is specified for those who direct or control or have the

     right to direct or control the conduct of another with respect to the

     sale of or provision of brokerage services to the sale of a dwelling."

 

As a matter of furthering the compelling policy of the FHA, the court concluded that a corporation may be held vicariouisly liable for its employee's violations of the FHA, whether or not the officers directed or authorized the particular discriminatory acts that occurred.

 

The court went on to discuss Meyer's liability as sole shareholder of Triad.  It stated: "Our rule [established in another case involving the vicarious liability of a non-corporate owner of a motel] renders the sole owner of a corporation liable based on the non-delegable duty to obey the FHA and, thus, if Meyer owned Triad at the time of the discriminatory acts at issue, he cannot relinquish the responsibility for preventing such discrimination to another party."   In short, Meyer was personally liable

as the owner of the business, regardless of any involvement that Meyer might have had in the conduct in question.

 

Even if Meyer had not been the owner, but only an officer, Meyer would have been vicariously liable because, in the words of the statute, he "directed or controlled, or had the power to direct or control" the behavior of the corporation's employees.  This leads to vicarious liability, regardless of whether due care was exercised in attempting to

control the employee's conduct.  (In fact, in this case, Meyer claimed he'd been ignoring the corporation because he thought that he'd sold it to Crank some years before.)

 

The court noted, however, the liability in this regard, if any,  would be for compensatory damages, and reserved any comment as to punitive damages.

 

The court then turned to the issue of Meyer's personal liability as the broker designated as the supervisor of Triad's agents.  The court essentially concluded that Meyer could be sued in this regard, but that liability would be predicated upon a showing of negligent supervision of Crank.  Although the court relied upon the same language in the statute, imposing liability on parties who "direct or control, or have the power to direct or control," other persons who are alleged to have violated the Fair Housing Act, the court apparently was unwilling to find "straight" vicarious liability in this case (although it never said why).

 

The court noted that state real estate licensing laws required that an individual, and not a corporation, hold brokerage licenses for the purposes of supervising the activities of agents. It stated that Meyer, as designated supervising broker, "had a duty to prevent unlawful discrimination such as that which is alleged of Triad salesperson Crank.

If Meyer breached that duty to supervise then he should be held accountable for such an omission even absent direct involvement or authorization of Crank's alleged discriminatory conduct."

 

Comment 1: The editor is frustrated with court's he lack of clarity as to why Meyer can be vicariously liable as a party who "directs or controls" but cannot be vicariously liable for the same acts in connection with his function as supervising broker.  But several readings of the case yield that same interpretation from the court's language.

 

A way to illustrate the point is to imagine what would happen if the supervising broker were in fact not an officer or owner of the real estate brokerage company where he worked.  What if an agent of that company discriminated against a party protected under the Fair Housing Act?

 

Then the company's owner, the president, and the company would all be vicariously liable.  But the supervising broker could defend liability on the grounds that he was reasonable in taking steps to prevent discrimination.

 

The editor fails to understand why the broker can raise this defense but the company and its officers cannot.  But the editor concludes that this is the meaning of the case.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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