J & N REALTY, INC.

To: NFHA Members          From: Bob Schwemm       Date: January 27, 2003  

                                                               Re: Meyer v. Holley 

            On January 22, 2003, the U.S. Supreme Court issued a unanimous opinion (written by Justice Breyer) in Meyer v. Holley, reversing the Ninth Circuit's decision in Holley v. Crank, 258 F.3d 1127 (9th Cir. 2001).  Although the Court reversed a pro-plaintiff decision, its ruling was narrow and not all bad. 

            This memorandum describes the Court’s opinion and gives my initial impressions about what it may mean for fair housing advocates.  In preparing this memo, I have consulted with Liz and Chris Brancart, my co-counsel in the Meyer case. 

I.  The Court's Opinion 

            The Court described the question presented as whether the Fair Housing Act (FHA) “imposes personal liability without fault upon an officer or owner of a residential real estate corporation for the unlawful activity of the corporation's employee or agent."  The Court’s answer was that the FHA "imposes liability without fault upon the employer in accordance with traditional agency principles, i.e., it normally imposes vicarious liability upon the corporation but not upon its officers or owners." 

            A. Basic Holding.  The Court’s decision to interpret the FHA “in accordance with traditional agency principles” means that the employer (principal) of an employee (agent) who violates the FHA will be liable along with the employee-agent.  The Court’s endorsement of vicarious liability based on traditional agency principles is important and valuable, although not surprising.  Ever since the early days of the FHA, all of the lower courts have agreed that vicarious liability applies, and fair housing organizations and advocates probably assumed that this position was sacrosanct.  But the FHA does not explicitly provide for vicarious liability, and there was no guarantee that the Supreme Court would endorse it.  Thus, one positive point about the Meyer decision is that the Court made clear that vicarious liability does attach to the senior entity when one of its agents discriminates. 

            B. Vicarious Liability in Cases with Non-Corporate Defendants.  Who is the senior entity that is liable when a lower-level employee-agent discriminates?  If the discriminating agent works for a non-incorporated entity (such as an individually owned real estate firm operating as a sole proprietorship), then the individual owner of that firm will be the one held vicariously liable.  But the intermediate supervisors will ordinarily not also be liable, unless they can be shown to have somehow endorsed or participated in the agent’s discrimination. 

            C. Vicarious Liability in Cases with Corporate Defendants: Corporate Officers.  If the discriminating agent works for a corporation (as in the Meyer case), then the corporation will be the one held vicariously liable.  Again, intermediate supervisors will ordinarily not also be liable (including the highest official of the company such as its president), unless they endorsed or participated in the agent’s discrimination.  In certain circumstances, a senior officer (such as the individual license holder in a corporate real estate firm) might be held vicariously liable along with the corporation, but only if there is some special basis for doing this (such as a local state’s real estate licensing law that provides for an agency relationship between this person and the employee who violated the FHA). 

            D. Vicarious Liability in Cases with Corporate Defendants: Corporate Shareholders.  Also in cases involving corporations, the shareholder-owners of the corporation will ordinarily not be liable.  Such shareholder-owners can be held liable along with the corporation, but only if they have a controlling interest in the corporation (e.g., they own all of its stock) and they have provided inadequate funding for the corporation or otherwise failed to follow the basic requirements of having a corporation by, say, not holding regular meetings of the shareholders or board of directors.  If such facts are shown, then the court may “pierce the corporate veil” and hold the individual owner(s) liable.  

            E. The “Non-Delegable Duty” Doctrine.  The Court rejected the idea that there is a non-delegable duty not to discriminate under the FHA, because Congress did not explicitly provide for such a special duty in the statute.  Thus, the Court held that the FHA does not impose a non-delegable duty "upon individual officers or owners of corporations -- who are not principals (or contracting parties) in respect to the corporation's unlawfully acting employee." 

            F. Status of this Particular Case.  In the Supreme Court, the plaintiffs in Meyer argued that there were two separate theories that could lead to holding the defendant liable even under “traditional” principles: 

            (1) Meyer’s role as the supervising officer-broker of the corporate real estate firm; and, 

            (2) his ownership of the corporation through the “piercing the corporate veil” doctrine. 

The Supreme Court chose not to decide the merits of these theories.  Instead, after reversing the lower court’s judgment, the Court remanded the case to allow the Ninth Circuit to consider these theories.  Thus, on remand, the plaintiffs may make these arguments, and, as the Supreme Court’s opinion put it, the Ninth Circuit remains free "to determine whether these questions were properly raised and, if so, to consider them."  

II.  What Does the Meyer Decision Mean for Fair Housing Advocates? 

            Although a unanimous Supreme Court decision reversing a lower-court victory for fair housing plaintiffs is hardly a cause for celebration, the outcome of this case and the Court’s opinion actually contain some positive elements (in addition, as explained above, to the Court’s endorsement of the general principle of vicarious liability in FHA cases): 

            A.  First, the Court agreed with the Ninth Circuit's characterization of the FHA’s objective as "an overriding societal priority."  This continues the Court’s long-standing rhetorical support for this statute, dating back to the 1972 Trafficante decision, which stated that the FHA embodies a “policy that Congress considered to be of the highest priority.”  In the modern era when the Court seems increasingly hostile to civil rights laws, the fact that Meyer provided an additional endorsement of the FHA’s importance in a unanimous opinion is welcome. 

            B.  Second, while the Court disagreed with and reversed the Ninth Circuit’s opinion in this case, it chose to distinguish – rather than also overrule – three other pro-plaintiff opinions from different courts of appeals that had dealt with the issue of the vicarious liability of an individual-owner defendant.  These cases are:  

(1) Chicago v. Matchmaker Real Estate Sales Center, Inc., 982 F.2d 1086 (7th Cir. 1992); 

(2) Walker v. Crigler, 976 F.2d 900 (4th Cir. 1992); and, 

(3) Marr v. Rife, 503 F.2d 735 (6th Cir. 1974). 

The fact that the Supreme Court seemed to accept these three favorable decisions means that they may be of continuing precedential value in determining how to apply the “traditional agency principles” that the Court in Meyer has now held governs the FHA. 

            C.  Third, the Court's decision that the FHA does not impose a non-delegable duty will, as a practical matter, have little effect on the outcome of most fair housing cases.  Real estate firms and property owners will still be liable under traditional agency principles for the acts of their employees and agents who discriminate while acting within the scope of their employment or agency.  It is well-settled that most intentional torts by employees (including FHA violations) fall within the scope of authority, thus creating vicarious liability.  The only situations where there will be no vicarious liability are those involving corporate supervisors and shareholders.  And even these persons will still be liable for their own wrongful acts. 

            The lower courts in FHA cases rarely relied on the “non-delegable duty” doctrine as the basis for imposing vicarious liability.  Rather, they simply used this phrase occasionally as a shorthand way of referring to situations where the existence of vicarious liability was required by traditional agency principles – in other words, in situations where liability would have attached to the senior supervising person even without the non-delegable duty doctrine because, say, that person owned and managed a non-incorporated business.  So, while the Meyer decision has eliminated from our arsenal a nice rhetorical phrase – it was great to be able to say that “the duty to obey the FHA is non-delegable” – the loss of this doctrine does not take away something that has been of much practical importance in actually winning cases. 

III.  Advice for Future Cases. 

            A.  Be prepared to litigate agency issues.  It is now clear that traditional agency principles govern FHA cases, which means that the Restatement (Second) of Agency (1957) should become a part of the library of all fair housing advocates.  The Restatement is a rich resource for identifying numerous ways in which traditional agency principles might impose vicarious liability.  (Of course, maintaining your commitment to other well-known books on fair housing law remains of vital importance!!!  You can be sure that the 2003 supplement to my book (due out in September) will deal in detail with the Meyer decision.) 

            B.  Remember that the existence of an agency relationship between the discriminating agent-employee and his principal-employer is a question of fact that should ordinarily go to the jury.  This means that summary judgment against the plaintiff on this issue is inappropriate in most cases, at least where the plaintiff has established a basic factual predicate supporting the theory of agency. 

            C.  When the case involves a defendant that is “closely held” corporation (that is, a corporation owned by one or only a few people), be aware of the possibility that the individual owner(s) of the corporation may be held liable under the theory of “piercing the corporate veil.”  Specifically, try to develop an understanding of what facts might support such a theory and, if appropriate, allege them in your complaint. 

            By the time of NFHA’s national conference in June, the Brancarts and I – together with John Relman and others – will prepare some materials on this “veil piercing” issue, including a model paragraph for FHA complaints involving such individually owned corporations. 

            D.  Finally, be aware that the Supreme Court is not a particularly friendly place for FHA cases these days, and it probably won’t get any friendlier in the foreseeable future.  This means that the cases you bring and the legal theories you rely on – particularly at the court of appeals level – should be defensible in terms of traditional legal doctrine.  And if you are fortunate enough to win a very pro-plaintiff decision in an appellate court, remember that post-victory settlement negotiations are always worth considering and that “cert. denied” are the happiest words you will ever hear.  This Supreme Court does not issue a “cert. granted” order in such a case in order to pat the lower court on the back and say, “Nice job.  Keep up the good work!”       

Conclusion.  After a few days reflection on the Supreme Court’s decision, I’m struck by the fact that the reactions I’ve received all seem to fall into one of two categories.  The first is from a group of good-hearted but not particularly well informed folks who express sympathy, even going so far as to try to console me on what they perceive as a devastating loss.  (I’ll admit that even I have moments when the awareness that I lost a Supreme Court case by a 9-0 vote does hurt a bit.) 

            The better informed people, however, understand that the loss was virtually guaranteed back when the Court first decided to take this case; that the only real question thereafter was “how” we would lose; and that, as to this “how” question, we did OK because: (a) our clients still have a fighting chance to win the case; and (b) serious damage was not done to the Fair Housing Act.  As one experienced Supreme Court practitioner who worked on NFHA’s amicus brief in this case put it: “Obviously, we achieved something here . . . because the Court held off doing its worst.” 

            I agree.  NFHA and its members can continue their work in a righteous cause without concern that serious road-blocks have been created by the Supreme Court’s decision in Meyer v. Holley.  Press on, folks.  Good luck to you all.  (But, yes, I would rather have won 9-0!)