Amicus Curiae Brief — Meyer v. Holley

( g FILED |

No. 01-1120 | AUG 2 2

OFFICE OF THE Oar

Supreme Court of the Gnited States

DAVID MEYER,

Petitioner,

vs.

EMMA MARY ELLEN HOLLEY; DAVID HOLLEY;

MICHAEL HOLLEY, a minor; BROOKS BAUER,

Respondents.

On Writ Of Certiorari To The United States

Court Of Appeals For The Ninth Circuit

BRIEF OF AMICUS CURIAE

National Association of REALTORS®

IN SUPPORT OF PETITIONER

LAURENE K. JANIK

Counsel of Record

General Counsel

RALPH W. HOLMEN

Associate General Counsel

NAN ROYTBERG

Associate Counsel

National Association of REALTORS®

430 North Michigan Avenue

Chicago, Illinois 60611-4087

(312) 329-8375

Attorneys for Amicus Curiae

National Association of REALTORS®

Midwest Law Printing Company/Photex — Chicago — (312) 321-0220

—— —————

i

TABLE OF CONTENTS

PAGE

TABLE OF ALPUTSORITED «occ ccccccccccccccsccccccccs i

IDENTITY AND INTEREST OF AMICUS CURIAE ...... 1

i 8 es | Pre rrrrrrrrrrrrrrrrrrrrrr rrr 2

SUMMARY OF ARGUMENT ............-00000eeeeeee 4

REFIT o cvccctedsnavecctocsciccvccenivesscesass 6

I. Neither the Text of the Fair Housing Act, Its

Legislative History, Nor the Regulations

Promulgated Pursuant to the Act Provide

That an Innocent Owner or Officer of an

Incorporated Real Estate Firm Is Strictly

Liable for the Fair Housing Act Violations of

the Firm’s Agents ...........------eeeeeeeeeees 6

II. The Non-Delegation Doctrine Does Not Re-

quire an Innocent Owner or Officer of a Real

Estate Brokerage Corporation To Be Held

Strictly Liable for the Fair Housing Act Vio-

lations of the Corporation’s Agents ............ 10

A. The Non-Delegation Doctrine Creates an

Exception to the Rule of Respondeat

Superior Such That a Principal May Be

Held Liable for the Conduct of a Corpo-

rate Agent Regardless of Whether the

Conduct Was Within the Scope of the

Agent’s Employment ..........--++++++5+: 10

B. Courts Have Inconsistently Applied the

Non-Delegation Doctrine in Their Analy-

ses of Prior Fair Housing Act Cases ........

C. The Non-Delegation Doctrine Does Not

Apply to Owners and Officers of Real

Estate Brokerage Corporations Because

Such Owners and Officers Are Not the

Principals of the Corporate Agents Who

Committed the Unlawful Acts .............

III. Common Law Provides No Basis for Aban-

doning Traditional Principles of Corporate

Law to Hold an Innocent Corporate Owner

or Officer Strictly Liable for the Fair Hous-

ing Act Violations of the Corporation's

AGIOED oc ccccccccscccccess PPTTTIT TIT TTTTie

A. Accepted Principles of Corporate Law

Clearly Provide that Corporate Owners

and Officers Are Not Personally Liable,

Solely on the Basis of their Positions, for

the Unlawful Acts Committed by the

Corporation's Agents ..... 2... 6... .cee cues

B. Courts Do Not Disregard Established

Principles of Corporate Law im Other

Contexts of Significance, and Have No

Need to Do So to Protect the Important

Interests of the Fair Housing Act...........

C. There Is No Need to Abandon Tradition-

al Principles of Corporate Law to Pre-

vent Injustice Because Existing Principles

Already Provide Victims With Just Rem-

BD senccnncssecctdbecdecds cvccecccccss

ill

IV. An Owner or Officer of a Real Estate Broker-

age Corporation May Be Personally Liable

for the Fair Housing Violations of a Corpo-

rate Agent Only If the Owner or Officer

Participated in, or Was Otherwise Specifi-

cally Responsible for, the Agent’s Conduct .....

CONCLUSION

iv

TABLE OF AUTHORITIES

CASES: PAGE(S)

Alexander v. Riga,

208 F.3d 419 (3 Cir. 2000),

cert. denied by 531 U.S. 1069 (2002) ................. 15

American Soc’y of Mechanical Eng’rs v. Hydrolevel

Comp... 36 US. SEG (19GR) .... occ ccccccscccces 19, 20, 26

Anderson v. Abbott,

Se Es bbs dedncconvenceesnen 19, 21, 24, 27

Barnhart v. Sigmon Coal Co.,

Pe nnrnaboscesenevéianedssecsanbaes 6

Berry v. Stevinson Chevrolet,

804 F.Supp. 121 (D.Colo. 1992) .............. 12, 18, 23

Bischofshausen, Vasbinder, & Luckie v. D.W. Jaquays

Mining & Equip. Contractors Co., 700 P.2d 902

ee ae GS Be raccencccacecocessvcoeccss 20-21

Bramesco v. Drug Computer Consultants,

834 F.Supp. 120 (S.D.N.Y. 1993) ................05. 23

Browning-Ferris Indus. of Ill. v. Ter Maat,

195 F.3d 953 (7™ Cir. 1999), cert.

denied by Ter Maat v. Browning-Ferris

Indus. of Ill., Inc., 529 U.S. 1098

GREED cceceseccceccvcseusesccces 18, 20, 21, 22, 24, 27

Burnet v. Clark,

I il eee Se Dae 19, 20

Cancun Adventure Tours v. Underwater Designer Co.,

862 F.2d 1044 (4™ Cir. 1988) .............. 2. eee eee 21

v

Cedric Kushner Promotions, Ltd. v. King,

35S US. 158 (2001)... 2... cece cece cece cece 18, 19

Circle T Corp. v. Deerfield,

444 P.2d 404 (Colo. 1968) .......................... 7

City of Chicago v. Matchmaker Real Estate Sales

Center, Inc., 982 F. 2d 1086 (7 Cir. 1992),

cert. denied by Ernst v. Leadership Council

for Metropolitan Open Communities, 508

IE elheteen ch ginicen ce) tecucisss., 14, 24

City of Evanston v. Baird & Warner, Inc.,

1989 WL 134310 (N.D. Ill. 1989) ................... 20

Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co.,

173 F.3d 725 (9" Cir. 1999) ..................... 20, 24

Coates v. Bechtel,

811 F.2d 1045 (7™ Cir. 1987) ....................... 15

Commissioner, Indiana Dep't of Envtl Mgmt. v.

RLG, Inc., 755 N.E.2d 556 (Ind. 2001) ........ 19, 25-26

Crigler v. Salac,

438 So.2d 1375 (Ala. 1983) ..................... 21, 24

Dillon v. AFBIC Dev. Corp.,

597 F.2d 556 (5™ Cir. 1979) .................. 20, 21, 26

Escrude Cruz v. Ortho Pharmaceutical Corp.,

619 F.2d 902 (1° Cir. 1980) ...... 2.0... cece cee ee 24

Fair Housing Congress v. Weber,

993 F.Supp. 1286 (C.D. Cal. 1997) .................. 16

vi

General Bldg. Contractors Ass’n., Inc. v. Pennsylvania,

GB UG. BPG (IGE) oc ccccccccccccccscccccccsceces 11

Harrison v. Otto G. Heinzeroth Mortgage Co.,

430 F.Supp 893 (N.D. Ohio 1977) .......----+++55+- 16

Hart v. Bayer Corp.,

199 F.3d 239 (5™ Cir. 1999) .... 0... cece cece ee eee 20

Heights Community Congress v. Hilltop Realty, Inc.,

629 F.Supp. 1232 (N.D. Ohio 1983), aff'd

in part, rev'd in part on other grounds, 774

F.2d 135 (6™ Cir. 1985), cert. denied by Hilltop

Realty, Inc. v. City of Cleveland Heights, 475

UG. BEBO CIGEED 20 ccccccccccccccccces 20, 21, 27-28, 29

Holley v. Crank,

258 F.3d 1127 (9™ Cir. 2001) ..........-..-. 8, 10, 18, 20

In the Matter of Jesse Jenkins,

788 A.2d 268 (N.J. 2002) .... 2... cece cece cece eens 20

Johnson v. Harrigan-Peach Land Dev. Co., Inc.,

489 P.2d 923 (Wash. 1971) .......---- cece eee e neers 25

Lawlor v. District of Columbia,

758 A.2d 964 (Ct.App. DC 2000) .....-.-------eeee- 23

Leadership Council for Metropolitan Open Communities

v. Chicago Southwest Holiday Inn Operators Oak

Lawn Lodge, Inc., 1985 WL 3601 (N.D. Ill. 1985) ...... 16

Maguire v. Montana,

835 P.2d 755 (Mont. 1992) .......---- cece eeeeeeeee 11

Vii

Mark v. Universal Builders,

501 F.2d 324 (7™ Cir.) cert.

denied by 419 U.S. 1070 (1974) ............0000cceee 24

Marr v. Rife,

503 F.2d 735 (6 Cir. 1974) ..............04-. 13-14, 29

Matter of Dougherty,

482 N.W.2d 485 (Minn. Ct. App. 1992).......... 25, 26

Micro Chem., Inc. v. Great Plains Chem. Co., Inc.,

194 F.3d 1250 (Fed. Cir. 1999) .................. 20, 24

Moline v. IRS,

eo ee eee eid eeabne 26-27

Moss v. Ole South Real Estate, Inc.,

Se ee SO” Ge BOOED cc ccccccccccesccccccecs 21

Mozingo v. Correct Mfg. Corp.,

752 F.2d 168 (5™ Cir. 1985) ...............0-. 18, 21, 24

One Pacific Towers Homeowners’ Association v.

Hal Real Estate Investments, Inc., 30 P.3d 504

GOS, CD. TEEED cccccccccccesccccecccccccsesees 21

Phiffer v. Proud Parrot Motor Hotel, Inc.,

Ge BED cc ccncccccsccccceseceiss 15

PMC, Inc. v. Kadisha,

78 Cal.App.4” 1368, 93 Cal.Rptr.2d 663 (2000) ... 20,24

Portee v. Hastava,

853 F.Supp. 1335 (E.D.N.Y. 1994) .............2005. 16

Reed v. Michael Realty & Associates, Inc.,

1994 WL 559225 (N.D. Ill. 1994) ............. 17, 27, 29

viii

Riverside Mkt. Dev. Corp. v. Int'l Bldg. Prods., Inc.,

931 F.2d 327 (5™ Cir.), cert. denied by Riverside

Market Ltd. Partnership v. Prescott, 502 U.S.

PRT cc cdccccccdvcccccscescesscosecccosoes 22

Robinson v. Shell Oil Co.,

GEE, BE GN oc voce cccccvcvsccccessecsceeeses 6

Rooney, III] v. Commonwealth of Virginia,

500 S.E.2d 830 (Va. 1998) .... 6... cece eee eens 24, 25

Saltiel v. GSI Consultants, Inc.,

788 A.2d 268 (N.J. 2002) ........6 0c cece eee eeee 19, 25

Sasso v. Cervoni,

985 F.2d 49 (2d Cir.), cert. denied by

Bourgal v. Cervoni, 508 U.S. 973 (1993) ....-..---+++. 22

Saunders v. General Servs Corp.,

659 F.Supp. 1042 (E.D. Va. 1987) ......-.----++eees 16

Scribner v. O’Brien, Inc.,

363 A.2d 160 (Conn. 1975) ....... 66. e cece eens 21, 24

Shipley v. Perlberg,

780 A.2d 396 (Md. 2001) ........- ee eee e cues 19, 22, 25

Skelton v. Chem. Leaman Tank Lines, Inc.,

1996 WL 278343 (Conn. Super. 1996).........--. 19, 25

Tillman v. Wheaton-Haven Recreation Ass'n, Inc.,

517 F.2d 1141 (4 Cir. 1975) .......-- 06 eee e eens 28, 29

U.S. v. Bestfoods,

524 US. 51 (1998) . 0... . ccc ccccvccccecscees 19, 20, 27

U.S. v. Dotterweich,

ena 25, 26

U.S. v. Garden Homes Mgmt. Corp.,

156 F.Supp. 2d 413 (D.N.J. 2001) .................. 16

U.S. v. Hodges X-Ray, Inc.,

FOP POET GUNG BOUND vcccccccccccccccesecees 25

U.S. v. L & H Land Corp., Inc.,

407 F.Supp. 576 (S.D.Fla 1976) .............000000. 16

U.S. v. Lorantffy Care Center,

999 F.Supp. 1045 (N.D. Ohio 1998) .......... 27, 28-29

U.S. v. Northeastern Pharmaceutical & Chem. Co., Inc.,

810 F.2d 726 (8" Cir.), cert. denied by 484 U.S.

SPEED S0bseedodesévsciccdcdseseseveseseccess 22

U.S. v. Northside Realty Associates, Inc.,

C55 P26 1968 OH” Cer. 1979) cc cccccccccccccces 20, 26

U.S. v. Park,

ee Sc cscccccscsccvccososes 18, 19, 25, 26

U.S. v. Real Estate Dev. Corp.,

347 F.Supp. 776 (N.D. Miss. 1972) ................. 12

U.S. v. Tropic Seas, Inc.,

887 F.Supp. 1347 (D. Haw. 1995) .................. 16

U.S. v. Youritan Const. Co.,

370 F.Supp. 643 (N.D. Cal. 1973), aff'd in part,

remanded in part by 509 F.2d 623 (9 Cir. 1975) . 12-13, 16

Walker v. Crigler,

SP TE” Ge BOUED ov ccccccccccescccecccs 9,15

Whidbee v. McDonald's Corp.,

75 F.Supp.2d 183 (S.D.N.Y. 1999), aff'd in

relevant part by Whidbee v. Garzarelli Food

Specialties, Inc., 223 F.3d 62 (2d Cir. 2000) ........ 22-23

Wicks v. Milzoco Builders, Inc.,

SFO A.28 G6 Da. ISEB)... oc cccccccscvcccccsceces 21, 25

Williams v. Poretsky Mgmt., Inc.,

955 F.Supp. 490 (D.Md. 1996) ........--..--eeeeeee 16

Zuch v. Hussey,

394 F.Supp. 1028 (E.D. Mich. 1975) ............+++. 16

STATUTES, RULES AND REGULATIONS:

ES a roe le de lacgdersaenaaemaen 7

21 U.S.C. § 301-92 ........... Ope a rar N EET 26

USL. OF 1961 and 1988 .....0..ccccccccccccccvesss 29

A I iiss isc ndteiianshademamennis 2

I ov ininixvenencitiencessdiuenn 6

I a iciciineceinsiniahdbavediontan 6

oid cic cdchinnbukeadonreiwal 2

SOOM. CADDO oo on ios cc ccsicccsvcccsacseces 7

24 C.F.R. § 103.20 (b) (1999) ........eeeeeeeeeeeeees 7,8,9

SG Ci OI a. isis ecivesexiviennciusaiis 9

ee ey CEE vo. sunddunus sdk: cabdeeveceaseeses 7

LEGISLATIVE HISTORY:

Fair Housing Act, Pub. L. No. 90-284, 82 Stat. 81;

Pub. L. No. 100-430, 102 Stat. 1619.................. 7

113 CONG. REC. H22818-819

SO SOUND wes cccescesonececsnsovocee 7

114 CONG. REC. H9551-613

Se ls GUNG By BUEED sccdccescsesecccccesccceces 7

114 CONG. REC. $5995-6002

Se SN Ss OEE cdccccesccccenesiscescesune 7

134 CONG. REC. H16475-512

Sy HUEY SUED 9 cvccoccvecsccrceecececcess 7

134 CONG. REC. H20910-920

Ge OU UN, TE TUG se cccevcccvccccvecseccecees 7

134 CONG. REC. $19870-907

GREY OG Aaa, Z, TOGED occ cccccccccccccccccccccces 7

RESTATEMENT AND PUBLICATIONS:

Restatement (Second) of Agency § 214 (1958) ......... 10-11

Fletcher Cyclopedia of the Law of Private Corporations,

§§ 7, 14, 33, and 1137 (Perm. Ed) ............ 19, 21, 25

NATIONAi ASSOCIATION OF REALTORS®:

a de ce ueedeeseceaes 2

1

BRIEF OF AMICUS CURIAE, NATIONAL

ASSOCIATION OF REALTORS®, IN SUPPORT

OF PETITIONER DAVID MEYER

Pursuant to Rule 37.2 of the Rules of this Court, amicus

curiae, the National Association of REALTORS® (“NAR”), sub-

mits this brief in support of the Petitioner, DAVID MEYER.

IDENTITY AND INTEREST

OF AMICUS CURIAE'

NAR is a nationwide, non-profit professional association,

incorporated in Illinois, that represents persons engaged in all

phases of the real estate business, including, but not limited

to, brokerage, appraising, management, and counseling. As

such, NAR is a champion of the interests of real estate pro-

fessionals and real property owners throughout the United

States.

Founded in 1908, NAR was created to promote and encour-

age the highest and best use of the land, to protect and

promote private ownership of real property, and to promote

professional competence. In pursuit of these objectives, NAR

is concerned with a wide range of activities, including

promotion of equal opportunity in housing, real estate

licensing, neighborhood revitalization, housing affordability,

and cultural diversity. Its members are bound by a strict Code

of Ethics to ensure professionalism and competence. The

membership of NAR includes 54 State Associations of

REALTORS®, approximately 1,600 Local Associations of

' The parties have consented to the filing of this brief and the letters

of consent are filed with the Clerk of the U.S. Supreme Court

herewith. Pursuant to Rule 37.6, amicus curiae states that counsel for

a party did not author this brief in whole or in part, and no person

or entity other than the amicus curiae made a monetary contribution

to the preparation and submission of this brief.

2

REALTORS®, and approximately 795,000 “REALTOR™"” and

REALTOR-ASSOCIATE® members. Petitioner David Meyer

has retired from active real estate practice, but was, at the

time of the events at issue in this case, a member of NAR.

INTRODUCTION

NAR has a substantial and long-standing commitment to

equal opportunity in housing and fair housing compliance. .

Pursuant to this commitment and immediately upon the

adoption of the Fair Housing Act, 42 U.S.C. §§ 3601-3619,

NAR adopted Article 10 of its Code of Ethics which mandated

that:

The REALTOR® shall not deny equal professional services

to any person for reasons of race, creed, sex or country of

national origin. The REALTOR® shall not be a party to

any plan or agreement to discriminate against a person or

persons on the basis of race, creed, sex or country of

national origin.’

In 1975, NAR and the U.S. Department of Housing and

Urban Development (“HUD”) created and adopted a Vol-

untary Affirmative Marketing Agreement (“VAMA”). The

VAMA was the first nationwide program to implement § 809

of the Fair Housing Act, which calls for the Secretary of HUD

to “work out programs of voluntary compliance and of en-

forcement” with persons in the housing industry. 42 U.S.C.

§ 3609. Renewed in 1981, 1987 and 1992, the VAMA served as

the model for agreements subsequently adopted by other

segments of the real estate market, including the National

Association of Homebuilders, the National Association of

? “REALTOR®” isa federally registered collective membership mark

used by members of NAR to indicate their membership status.

* Article 10 was amended to add the protected classes of handicap

and familial status in 1988.

3

Real Estate License Law Officials and the American Institute

of Real Estate Appraisers. The VAMA was replaced in 1996

with the NAR/HUD Fair Housing Partnership Agreement,

which remains in effect today. This Agreement lays out a

comprehensive program for NAR and HUD, as partners, to

implement their commitment to fair housing.

NAR’s concern about the opinio:. of the Ninth Circuit

derives directly from its commitment to Fair Housing Act

compliance. The opinion below is of far reaching importance

to NAR’s many members, as well as hundreds of thousands

of incorporated real estate brokerage firms, because it aban-

dons a fundamental tenet of corporate law relied on by many

real estate firms. NAR is deeply troubled by the way in which

the Ninth Circuit's opinion inappropriately and unnecessarily

imposes personal liability on owners and officers of real estate

brokerage corporations, solely as a result of those positions,

for discriminatory conduct by the sales agents of such cor-

porations. This conclusion is unprecedented, unsupported by

the Fair Housing Act or any other authority, including that

cited by the Ninth Circuit, and squarely at odds with existing

principles of corporate law and fairness. Any imposition of

personal liability should be in accordance with a fault-based

standard.

NAR urges this Court to reverse the Ninth Circuit and

establish the principle that corporate owners and officers are

not, as a consequence of holding those positions alone, strictly

liable for the Fair Housing Act violations of corporate agents,

but instead may be liable only when they participate in or

otherwise are directly responsible for the conduct that con-

stitutes the violation.‘

* NARemphasizes that its interest and concern is solely with respect

to the Ninth Circuit’s holding that Petitioner Meyer is liable for the

Fair Housing Act violations of an agent of Triad Realty because he is

Triad’s shareholder and president. All references in this amicus brief

(continued...)

4

SUMMARY OF ARGUMENT

This case presents the question “whether . . . owners and

officers of (real estate brokerage) corporations are absolutely

liable for an employee's or agent’s violation of the (Fair

Housing) Act, whether or not they personally directed, auth-

orized, or were even aware of the particular acts that oc-

curred.” Petition for Certiorari at i. This case does not raise the

issue of whether individuals acting in their capacity as real

estate brokers are liable for the Fair Housing Act violations of

their agents.

The question for this Court, and that which invokes NAR’s

concern, is whether Petitioner, as an innocent owner and

officer of Triad, is liable under the Fair Housing Act for

Crank’s misconduct. The Ninth Circuit’s holding that Meyer

may be liable on the basis of his status as owner and president

of Triad Realty, without fault or culpability, is incorrect, and

requires reversal by this Court.

First, the starting point for the question presented is, of

course, the Act itself. Straightforward examination of the text

of the Act, the relevant regulations and the Act's legislative

history, reveals that the Act provides no basis whatsoever for

holding owners or officers personally liable for discrimina-

tory conduct by agents of such firms.

Second, the principle of “non-delegability” cannot be ap-

plied to hold owners or officers personally liable for viola-

tions of the Act by their corporation’s agents. The Ninth

(...continued)

to Meyer’s liability, or that of owners or officers of real estate

corporations generally, should be understood to refer only to liability

arising from an individual’s position as owner or officer of the

corporation and without reference to any personal involvement in

allegedly discriminatory conduct. Correspondingly, all references to

the holding and conclusions of the Ninth Circuit below refer ex-

clusively to that court’s decision as it relates to this issue.

5

Circuit erred in doing so. Courts have not cited or applied the

concept of non-delegability in Fair Housing Act cases in a

consistent fashion, with some treating it as little more than

another name for the familiar doctrine of respondeat superior,

while others correctly apply it as an exception to respondeat

superior that disregards whether the agent was acting within

the scope of his employment. In either case, however, the

non-delegability doctrine applies only to hold a person acting

in the capacity of a principal liable for actions of his agent.

Accordingly, non-delegability may cause the corporation that

is the employer of a real estate sales agent to be liable for the

agent's violations of the Act. However, non-delegability is

simply .napplicable to the owners and officers of the corpora-

tion, since they are not principals of the corporation’s agents.

Third, traditional corporate law does not dictate a conclu-

sion that owners or officers are personally and strictly liable

for the acts of corporate agents. Contrary to the Ninth Cir-

cuit’s suggestion, there is no basis to apply a different rule in

the context of the Fair Housing Act. Courts do not hold cor-

porate owners and officers personally liable for the unlawful

conduct of corporate agents with respect to other matters of

significant public concern, unless there has been personal in-

volvement. Moreover, existing theories of law afford victims

with recourse when corporate agents act wrongfully and

corporate owners and officers are truly culpable.

Finally, since neither the Fair Housing Act, the common

law, nor the principle of non-delegability provide a basis for

owners and officers of incorporated real estate brokerages to

be held personally liable for violations of the Act by firm

agents, any Fair Housing Act liability of those owners and

officers must be based on personal fault. Liability is appropri-

ate where the individuals participated in the alleged discrimi-

natory conduct, or where they bore responsibility or were

otherwise culpable for the conduct which allegedly violated

the Act.

ARGUMENT

I. Neither the Text of the Fair Housing Act, Its Legislative

History, Nor the Regulations Promulgated Pursuant to the

Act Provide That an Innocent Owner or Officer of an

Incorporated Real Estate Firm Is Strictly Liable for the Fair

Housing Violations of the Firm’s Agents.

The proper place to begin any inquiry as to whether owners

or officers of an incorporated real estate brokerage firm bear

personal and strict liability under the Fair Housing Act

(“Act”) for violations of the Act by employees or agents of the

firm is, of course, the language of the Act itself. Barnhart v.

Sigmon Coal Co., 534 U.S. 438 (2002); Robinson v. Shell Oil Co.,

519 U.S. 337 (1997). Examination of the text of the Act yields

nothing to suggest that owners and officers may be held per-

sonally liable. The Act prescribes the discriminatory conduct

made unlawful under the Act, but does not explicitly identify

those who may be liable for violations of the Act. 42 U.S.C.

§§ 3604-06. ‘Respondent’ is defined to mean only

(1) the person or other entity accused in a complaint of an

unfair housing practice; and (2) any other person or entity

identified in the course of investigation and notified as

required with respect to respondents so identified under

§ 3610(a) of this title.

42 U.S.C. § 3602.

In short, the Act proscribes conduct without expressly, or

even implicitly, suggesting that liability is to be strictly im-

posed on corporate owners or officers when a corporate

employee or agent engages in conduct that violates the Act.°

° The Act is silent even as to any fault-based liability of corporate

owners or officers, in sharp contrast to the clear intent of Congress

with respect to antitrust violations:

(continued...)

7

The Act's legislative history is equally silent on the issue.

Although both chambers of Congress engaged in extensive

and active debate preceding enactment, nothing said by any

Member of Congress, nor any portion of the House and

Senate reports, suggests any Congressional intent that owners

and officers of corporate real estate firms be held liable for

violations of the Act, in that capacity alone and without

more.°

The regulations promulgated by the Department of Hous-

ing and Urban Development (“HUD”) in connection with

enforcement of the Act, 24 C.F.R. §§ 100-103 (2002), likewise

do not impose liability for violations of the Act by corporate

employees on the shareholders or officers of the corporation.

To be sure, the prior version of 24 C.F.R. §103.20(b) (1999), on

which the Ninth Circuit relied, in part, did address “Persons

(...continued)

Whenever a corporation shall violate any of the penal

provisions of the antitrust laws, such violation shall be

deemed to be also that of the individual directors, officers,

or agents of such corporation who shall have authorized,

ordered, or done any of the acts constituting in whole or in

15 U.S.C. § 24. See also Circle T Corp. v. Deerfield, 444 P.2d 404, 407

(Colo. 1968), where the statute expressly provided that a person

injured by a corporation’s breach of fiduciary duty could bring a

claim for relief against the and “the designated member

or director acting as broker.” C.R.S. 1963, 117-1-5(8).

* Fair Housing Act, Pub. L. No. 90-284, 82 Stat. 81; 113 CONG. REC.

H22818-819 (daily ed. Aug. 16, 1967); 114 CONG. REC. H9551-613

(daily ed. Apr. 10, 1968); 114 CONG. REC. S5995-6002 (daily ed. Mar.

11, 1968); Pub. L. No. 100-430, 102 Stat. 1619; 134 CONG. REC.

H16475-512 (daily ed. June 29, 1988); 134 CONG. REC. H20910-920

(daily ed. Aug. 8, 1988); 134 CONG. REC. S$19870-907 (daily ed. Aug.

2, 1988).

against whom complaints may be filed.”’ For several reasons,

however, the Ninth Circuit's reliance on that regulation was

erroneous, and this Court should reject any suggestion that

the regulation indicates the intent of Congress or HUD that

corporate owners and officers be personally liable for viola-

tions of the Act by corporate employees or agents.

First, the text of that regulation does not support liability

for corporate owners and officers. The Ninth Circuit em-

phasized the language that permits complaints against any

“who directs or controls, or has the right to direct or

control, the conduct of another person” and concluded that

David Meyer, as owner and officer, could be personally liable

for the conduct of Triad Realty agent Crank. Holley v. Crank,

258 F.3d 1127, 1130-31 (9" Cir. 2001) quoting 24 C.F.R. §103.20

(1999). Although the court did not expressly state this, it

presumably determined that as owner and officer, Meyer

controlled, or had the right to control, Crank. But the court

ignored the language following that which it quoted. That

language further requires that the “other person” (that is, the

individual actually engaged in discriminatory conduct) be

“acting within the scope of his or her authority as employee or

agent of the directing or controlling person. . . .” (Emphasis

added.) 24 C.F.R. §103.20(b) (1999). As sales agent for Triad

Realty, Crank was an employee of Triad, not of Meyer, and

Triad was “the directing or controlling person.” Thus, even if

applicable, this regulation leads only to the conclusion that

” 24 C.F.R. §103.20 (1999): “Persons against whom complaints may

be filed. (a). . . (6) A complaint may also be filed against any person

who directs or controls, or has the right to direct or control, the

conduct of another person with respect to any aspect of the sale,

rental, advertising or financing of dwellings or the provision of

a ee

person, acting within the scope of his or her authority as em-

ceneapanmaaliedbninasentedimmmnn danamen tine

engaged, or is about to engage, in a discriminatory housing practice.”

ee

Triad Realty, not Meyer, bears liability for the actions of

Crank.

Moreover, examination of the history of 24 C.F.R. § 103.20

clearly demonstrates that it was not intended to be applied

with the broad brush wielded by the Ninth Circuit. That

history is accurately and articulately set forth in the dissent-

ing opinion in Walker v. Crigler:

The history of the promulgation of the present §103.20

confirms that HUD in no way intended to impose strict

vicarious liability upon innocent property owners. . . .

... HUD’s comments accompanying the publication of the

final version of the rule in question, which remains the

version in force today, both make clear that no strict lia-

bility was intended:

‘[I]t is not HUD’s intent to impose absolute liability on

any principal; the intent, in proposing paragraph (b), was

to follow the law enunciated by the courts in recent Fair

Housing Act cases with respect to the liability of a princi-

pal for acts of an agent. . . . 53 Fed. Reg. 24185 (1988)’

976 F.2d 900, 906-07 (4 Cir. 1992) (Widener, dissenting) (foot-

notes omitted).

The dissent in Walker concludes that “the most straightfor-

ward reading of the text of the present §103.20, . . . (provides)

that familiar principles of agency law, and not strict liability,

control a principal's liability for the acts of an agent.” Id.

Thus, this regulation was not intended to impose absolute

liability even on real estate brokers to whom sales agents are

directly responsible, let alone the owners and officers of the

real estate firm who employ these brokers and agents. In-

stead, be agama amp Aap: prema aet sge

the liability of a for acts of an agent, including the

requirement that the principal (the broker) is liable only if the

agent was acting within the scope of his or her authority.

10

Given that, it is incorrect to apply this regulation to hold that

innocent owners and officers of corporate real estate firms,

who are not, as noted above, principals of the agents of the

firm, absolutely liable for the conduct of agents.

In short, neither the text of the Act, its legislative history,

nor the regulations adopted by HUD for enforcement of the

Act, including the specific regulation relied on below, support

the Ninth Circuit's conclusion that “owners and officers of

corporations may be held vicariously liable for an employee's

violations of the Fair Housing Act... .” Holley, 258 F.3d at

1129.

II. The Non-Delegation Doctrine Does Not Require an

Innocent Owner or Officer of a Real Estate Brokerage

Corporation To Be Held Strictly Liable for the Fair Hous-

ing Act Violations of the Corporation’s Agents.

The Ninth Circuit also concluded that Meyer was liable as

sole owner and officer of Triad “because the duty not to

discriminate is a non-delegable one. . . .” Holley, 258 F.3d at

1134. Contrary to the Ninth Circuit’s holding, the non-

delegation principle does not require or support the conclu-

sion that owners and officers of real estate brokerage corpora-

tions are strictly liable for the acts of agents of the corpora-

tion.

A. The Non-Delegation Doctrine Creates an Exception to

the Rule of Respondeat Superior Such That a Principal

May Be Held Liable for the Conduct of a Corporate

Agent Regardless of Whether the Conduct Was Within

the Scope of the Agent's Employment.

The concept and the consequences of non-delegable duties

are set forth in the Restatement (Second) of Agency § 214

(1958), which subjects a principal “to liability to others for

harm caused to them by the failure of (an) agent to perform

(a non-delegable) duty.” Comment (a) to this section explains

11

that a principal “is normally not responsible for the conduct

of others, except that of his agent or servant acting within the

scope of their employment .. .,” and then explains that when

a principal has “a duty to see that due care is used in the

protection of another, . . . the duty of care is non-delegable.”

In such event, the Restatement continues, a principal may be

responsible for harm caused by conduct of his agents or

servants not within the scope of employment. Id.

Relying on this section of the Restatement, this Court

addressed the doctrines of non-delegable duties and re-

spondeat superior, albeit not in a Fair Housing Act context, in

General Bldg. Contractors Ass‘n., Inc. v. Pennsylvania, 458 U.S.

375 (1982). In that decision, this Court noted that “the (non-

delegation) doctrine creates an exception to the common-

law rule that a principal normally will not be liable for the

tortious conduct of an independent contractor.” Id. at 396.°

This Court went on to comment that “[i]n a sense, to charac-

terize such a duty as ‘nondelegable’ is merely to restate the

duty. . . . The question is what duty does (the statute) im-

pose.” Id.°

Under respondeat superior, therefore, principals are liable

only for acts of their agents within the scope of their employ-

ment. Where the principal has a duty deemed to be non-

delegable, however, liability may be imposed on the principal

even if the agent acts outside the scope of employment. In

either -ase, the threshold question is whether the defendant

is a principal of the person who committed the actions on

. See also Maguire v. Montana, where the Montana Supreme Court

also described § 214 as providing a “nondelegable duty exception to

the (common law) respondeat superior doctrine.” 835 P.2d 755, 759

(Mont. 1992).

* As explained in Section I of this amicus brief, the Act imposes no

duties on owners and officers of real estate brokerage corporations

in such capacities alone.

12

which the plaintiff's claims are based. As a matter of law,

owners and officers of real estate corporations are not, as a

consequence of those capacities alone, principals of the agents

of the corporation. Berry v. Stevinson Chevrolet, 804 F.Supp.

121, 134 (D.Colo. 1992).

B. Courts Have Inconsistently Applied the Non-Delega-

tion Doctrine in Their Analyses of Prior Fair Housing

Act Cases.

The non-delegation concept in Fair Housing Act cases

appears to have been first suggested in U.S. v. Real Estate Dev.

Corp., 347 F.Supp. 776 (N.D. Miss. 1972). In Real Estate Dev.

Corp., acase involving alleged racial discrimination in making

rental housing available, the court attributed the actions of

the resident apartment managers to the defendants who had

employed them—that is, to their principals. Id. at 785.'° The

court noted that the managers/agents’ “acts and statements,

made within the scope of their agency, were attributable to

the defendants, whose duty to comply with the law is ‘non-

delegable.’” Id. at 785. Thus, the court improperly addressed

the “scope of agency” question in its non-delegability analy-

sis.

Real Estate Dev. Corp. was subsequently quoted and relied

on in U.S. v. Youritan Constr. Co., where the court concluded

that the owner and property manager of an apartment

complex was liable for the discrimination of its apartment

manager rental agent “both under the doctrine of respondeat

superior and because the duty to obey the law is non-

delegable.” 370 F.Supp. 643, 649 (N.D. Cal. 1973), aff'd in part,

' The principals were both the corporation that had owned the

property and the individual owner, who had become the property

owner upon dissolution of the corporation, which had taken place

prior to the court’s decision. 347 F. Supp. at 779.

13

remanded in part by 509 F.2d 623 (9 Cir. 1975). The court did

not explain its understanding of the distinction between those

two doctrines, but merely noted that “where, as here, manage-

ment’s lack of supervision and failure to establish objective

and reviewable procedural standards have resulted in apart-

ments being made unavailable to blacks by agents and em-

ployees, management's failure to act is in itself violative of

§ 3604(a).” Id.

Shortly thereafter, in Marr v. Rife, the Sixth Circuit reversed

the District Court’s conclusion that the owner of a real estate _

firm could not be held liable for the discrimination of the ~

firm's agents, citing the non-delegability principle articulated

in Youritan and Real Estate Dev. Corp. Marr v. Rife, 503 F.2d 735,

741 (6" Cir. 1974). The District Court had held that defendant

Doug Rife, proprietor of the Doug Rife Realtor Agency, could

not be charged with liability because there was no evidence

that he had personally joined in any of his agent's discrimina-

tory conduct, or that the agent “acted with the approval or at

the direction of Rife.” Id. at 740-42.

The Sixth Circuit reversed, asserting that “as owner of the

agency, Rife had at least the power to control the acts of his

salesmen.” Id. at 742. Thus, in Marr, the court concluded that

the duty of an owner to comply with the Fair Housing Act

is non-delegable, and held the owner—the principal of the

agents who engaged in the discriminatory conduct—liable,

notwithstanding his lack of knowledge or involvement in the

discriminatory acts. Id."

" It is important to note that Marr is distinguishable from the facts

in this case because the firm is described only as “a real estate

agency,” and thus not necessarily a corporation. Indeed, the opinion

refers to defendant Doug Rife as “proprietor of the agency,” at least

suggesting that the firm was a sole proprietorship, rather than a

corporation. In either event, the court in Marr correctly applied the

(continued...)

14

Subsequent Fair Housing Act cases have likewise held that

compliance with the Act is non-delegable, but that conclusion

is inapt to the question of liability of corporate owners and

officers of real estate corporations for the acts of corporate

agents. These cases are not consistent in imposing liability on

a principal without consideration of whether the agent acted

within his scope of employment, or whether the principal

engaged in his own culpable conduct. But they are completely

consistent in applying the non-delegability doctrine to the

question of whether a principal is liable for the acts of an

agent, which is, of course, the fundamental purpose of the

doctrine of respondeat superior and the non-delegability

exception to that common law rule.

For example, in City of Chicago v. Matchmaker Real Estate Sales

Center, Inc., the Seventh Circuit applied non-delegability to

hold the defendant corporation liable for the acts of its sales

agents, citing General Bldg. Contractors as to the application of

respondeat superior and agency law: “[Aj principal cannot

free itself of liability by delegating to an agent the duty not to

discriminate.” (Citations omitted.) 982 F.2d 1086, 1096 (7™ Cir.

1992), cert. denied by Ernst v. Leadership Council for Metro. Open

Communities, 508 U.S. 972 (1993). By contrast, the court did not

reference non-delegability to conclude that Erwin Ernst, the

owner of the defendant corporation, was personally liable for

the Fair Housing Act violations of certain sales agents of the

firm. Id. at 1098. Instead, the court cited Ernst’s conduct and

functional responsibilities as sole owner, chief executive offi-

cer and “[s]ignificantly, (supervisor of) the day-to-day opera-

tions of Matchmaker and its agents.” Id. Based on Ernst’s

personal involvement in real estate activities, with the corre-

(...continued)

non-delegability doctrine in that it imposed liability on the principal

without regard to whether the agent was acting within or outside the

scope of his agency.

15

sponding duty of Fair Housing Act compliance because of

that personal involvement, and not simply and solely based

on non-delegability or his status as owner and CEO of Match-

maker Real Estate Sales Center, Inc., the court held Ernst

personally liable. Id.

Walker v. Crigler is also consistent with this formulation. 976

F.2d 900 (4" Cir. 1992). In Walker, the owner of rental property

was held liable for discriminatory conduct by the property

manager, whose duties included renting the property and

who had been hired by the owner. Id. at 904-05. The Walker

court applied non-delegation to hold the rental property

owner liable for the acts of its agents, but that conclusion is

inapplicable to the quite different question of whether a

violation of the Fair Housing Act by agents of the corporation

can be imputed to the corporation’s owners and officers.

In Coates v. Bechtel, the Seventh Circuit acknowledged that

under the Fair Housing Act “the courts have imputed the

wrongful acts of a real estate sales or rental agent to the

property owner he is representing regardless of whether the

owner specifically authorized the agent to engage in the racial

discrimination” and that “the duty of property owner ‘to obey

the laws relating to racial discrimination’ is nondelegable.”

811 F.2d 1045, 1051 (7 Cir. 1987) (emphasis added). Similarly,

in Alexander v. Riga, the court “adopt(ed) the general rule

applied by other federal courts that the duty of a landlord

not to discriminate in the leasing of property may not be

delegated to the landlord’s employee.” 208 F.3d 419, 433 (3"

Cir. 2000), cert. denied by 531 U.S. 1069 (2001) (citing Walker,

Marr, Phiffer, and Coates) (emphasis added)."* Numerous

courts in other Fair Housing Act cases have cited “non-

'2 See also Phiffer v. Proud Parrot Motor Hotel, Inc., 648 F.2d 548 (9" Cir.

1980) (although non-delegation was cited, the court also noted a

fault-based reason for holding the individual defendant personally

liable for the desk clerk’s discrimination where the desk clerk’s

actions were dictated by the hotel management's policies).

16

delegation” as a basis on which to do nothing more than

apply vicarious liability to hold a principal liable for the acts

of an agent.”

C. The Non-Delegation Doctrine Does Not Apply to Own-

ers and Officers of Real Estate Brokerage Corporations

Because Such Owners and Officers Are Not the Princi-

pals of the Corporate Agents Who Committed the Un-

lawful Acts.

When the doctrinal underpinnings of non-delegation are

properly understood, it is clear that the conclusion that

compliance with the Fair Housing Act is “non-delegable” has

no significance to the issue presented here: whether owners

and officers of an incorporated real estate brokerage firm are

liable for Fair Housing Act violations by agents of the firm.

Non-delegability applies only to impose liability on a princi-

pal for the conduct of his agent, and therefore can result in

liability only for the principals of those agents—that is, the

real estate brokerage corporations that employ the agents.

'? U.S. v. Garden Homes Mgmt. Corp., 156 F Supp. 2d 413 (D.N.J. 2001);

Fair Housing Congress v. Weber, 993 F.Supp. 1286 (C.D. Cal. 1997);

Williams v. Poretsky Mgmt., Inc. 955 F.Supp. 490 (D.Md. 1996); Portee

v. Hastava, 853 F.Supp. 1335 (E.D.N.Y. 1994); Zuch v. Hussey, 394

F.Supp. 1028 (E.D. Mich. 1975); U.S. v. Youritan Constr. Co., 370

F.Supp. 643 (N.D. Cal. 1973). A few federal district courts have held

that corporate officers may be held personally liable for violations by

corporate employees. These cases, however, are essentially uniform

in failing to provide any analysis, or usually much discussion, as to

why they disregard the corporation, and must be dismissed as

simply misguided. See U.S. v. Tropic Seas, Inc., 887 F.Supp. 1347

(D.Haw. 1995); Saunders v. General Servs Corp., 659 F.Supp. 1042 (E.D.

Va. 1987); Leadership Council for Metropolitan Open Communities v.

Chicago Southwest Holiday Inn Operators Oak Lawn Lodge, Inc., 1985 WL

3601 (N.D. Ill. 1985); Harrison v. Otto G. Heinzeroth Mortgage Co., 430

F.Supp. 893 (N.D. Ohio 1977); U.S. v. L & H Land Corp., Inc., 407

F.Supp. 576 (S.D.Fla 1976).

— -

—

17

The correct approach is illustrated by the thoughtful

analysis of the Northern District of Illinois in Reed v. Michael

Realty & Associates, Inc., where the court found that the

president and secretary of a real estate brokerage corporation,

George S. Michael, was not personally liable for the discrimi-

natory acts of the corporation’s apparent agent by virtue of

being a corporate officer and nothing more. 1994 WL 559225,

10 (N.D. Ill. 1994). The court noted “Courts of Appeal, in-

cluding our own, . . . have observed that the duty of a

property owner not to discriminate is non-delegable.” The

court went on to recognize the wrongdoer as an agent of the

corporate real estate firm employed by the property owner,

rather than an agent of Michael personally. Id. at 6-7. The

court thus refused to hold Michael liable, by virtue of his

status as secretary and president alone, for the acts of the

corporation’s agent. Id. at 10. Though the court noted that the

duty of Fair Housing Act compliance is non-delegable, be-

cause the alleged wrongdoer was not an agent of defendant

Michael, Michael could not be personally liable, based solely

on the fact that he was an officer of the corporation of which

the wrongdoer was an agent.

In short, the Ninth Circuit erred in concluding that because

Fair Housing Act compliance is non-delegable, personal

liability may be extended to owners and officers of corporate

firms when corporate agents violate the Act. Non-delegability

and ordinary principles of respondeat superior address

whether principals may be held liable for the misconduct of

agents, and both hold that a principal may be liable for

violations of the Act by an agent. But neither applies or is

instructive with regard to the question before this Court,

which is whether owners and officers of an incorporated real

estate brokerage firm are liable for Fair Housing Act viola-

tions by the firm’s agents.

18

III. Common Law Provides No Basis for Abandoning Tradi-

tional Principles of Corporate Law to Hold an Innocent

Corporate Owner or Officer Strictly Liable for Fair Hous-

ing Act Violations of the Corporation’s Agents.

The Ninth Circuit correctly recognized that “under general

principles of tort law corporate shareholders and officers

usually are not held vicariously liable for an employee's

action...” Holley, 258 F.3d at 1129. Turning to the question of

whether courts should apply different criteria when the

employee’s conduct violates the Fair Housing Act—that is,

“whether owners and officers of corporations may be held

vicariously liable for an employee's violations of the Fair

Housing Act (FHA),” the Ninth Circuit answered, “We con-

clude that they can.” Id.

This conclusion is wrong. As explained below, there is no

merit to the claim that departure from traditional principles

of corporate law is warranted by the highly important in-

terests safeguarded by the Fair Housing Act. In cases involv-

ing other significant interests, such as equal employment

opportunity, environmental protection, product liability,

RICO and consumer health, which are also of critical impor-

tance, courts have not abandoned long-standing corporate

principles when examining the potential liability of corporate

owners and officers. Cedric Kushner Promotions, Ltd. v. King,

533 U.S. 158 (2001) (RICO); U.S. v. Park, 421 U.S. 658 (1975)

(Federal Food, Drug and Cosmetic Act); Browning-Ferris

Industries of Illinois v. Ter Maat, 195 F.3d 953 (7™ Cir. 1999), cert.

denied by Ter Maat v. Browning-Ferris Indus. of Ill., Inc., 529 U.S.

1098 (2000) (environmentai); Mozingo v. Correct Mfg. Corp., 752

F.2d 168 (5" Cir. 1985) (products liability); Berry v. Stevinson

Chevrolet, 804 F.Supp. 121 (S.D.N.Y. 1993) (employment/ race

discrimination).

Neither is the Ninth Circuit’s determination to ignore these

time-honored principles of corporate law required in order to

adequately protect the victims of Fair Housing Act violations.

gras ae ee eee -

19

Such victims have other remedies and opportunities to re-

cover against truly culpable parties. First, courts can hold the

corporation itself liable. American Soc’y of Mechanical Eng’rs v.

Hydrolevel Corp., 456 U.S. 556 (1982). See also Fletcher Cyclopedia

of the Law of Private Corporations, § 33 (Perm. ed).

Second, courts, including this Court, have used at least two

other existing theories of law to hold corporate officers and

owners personally liable, under appropriate circumstances,

for the unlawful conduct of corporate agents: (1) the partici-

pation theory, Saltiel v. GSI Consultants, Inc., 788 A.2d 268 (N.J.

2002); Shipley v. Perlberg, 780 A.2d 396 (Md. 2001); Skelton v.

Chem. Leaman Tank Lines, Inc., 1996 WL 278343 (Conn. Super.

1996), and (2) the responsible corporate officer doctrine. Park,

421 U.S. at 673-74; Commissioner, Indiana Dep't of Envt! Mgmt.

v. RLG, Inc., 755 N.E.2d 556 (Ind. 2001).

Finally, when there is evidence that the corporation is a

sham and does not have the financial resources necessary to

provide recourse, courts can pierce the corporate veil so that

the plaintiff may recover from an owner who was at fault.

U.S. v. Bestfoods, 524 U.S. 51, 62 (1998); Anderson v. Abbott, 321

U.S. 349, 356 (1944). For these reasons, this Court should reject

the Ninth Circuit’s suggestion that courts should abandon

established corporate law principles in the context of fair

housing.

A. Accepted Principles of Corporate Law Clearly Provide

that Corporate Owners and Officers Are Not Personally

Liable, Solely on the Basis of their Positions, for the

Unlawful Acts of the Corporation’s Agents.

A fundamental tenet of corporate law, recognized consis-

tently by this Court, is that the corporate entity is separate

from its owners and officers. Kushner, 533 U.S. at 163; Best-

foods, 524 U.S. at 61; Burnet v. Clark, 287 U.S. 410, 415 (1932).

20

What underlies this recognition is that

the principle of limited liability . . . serves the important

social purpose of encouraging investment by individuals

who are risk averse and therefore will not invest (or will

insist on a much higher return) in an enterprise if by doing

so they expose their entire wealth to the hazards of litiga-

tion.

Browning-Ferris, 195 F.3d at 959.

In addition, judicial recognition of the corporate structure,

including its limitations on individual liability, is not incon-

sistent with justice for the victims of corporate employee /

agent misconduct because wronged plaintiffs retain a legiti-

mate and usually adequate source for remedy—the corpora-

tion itself. Hydrolevel, 456 U.S. at 556; Dillon v. AFBIC Dev.

Corp., 597 F.2d 556, 563 (5 Cir. 1979); U.S. v. Northside Realty

Associates, Inc., 605 F.2d 1348, 1353-54 (5" Cir. 1979); Heights

Community Congress v. Hilltop Realty, Inc., 629 F.Supp. 1232

(N.D. Ohio 1983), aff'd in part, rev'd in part on other grounds, 774

F.2d 135 (6™ Cir. 1985), cert. denied by Hilltop Realty, Inc. v. City

of Cleveland Heights, 475 U.S. 1019 (1986).

Federal and state courts across the country uniformly and

consistently apply the axiom that even the Ninth Circuit in

Holley has acknowledged: corporate owners and officers are

generally not personally liable for the torts committed by

agents of their corporations. 258 F.3d at 1129."* This is true

“ See also Bestfoods, 524 U.S. 51 at 61-62; Burnet, 387 U.S. at 415; Micro

Chem., Inc. v. Great Plains Chem. Co., Inc., 194 F.3d 1250 (Fed. Cir.

1999); Hart v. Bayer Corp., 199 F.3d 239 (5 Cir. 1999); Coastal Abstract

Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725 (9" Cir. 1999);

Northside, 605 F.2d at 1353-54; In the Matter of Jesse Jenkins, 788 A.2d

268 (N.J. 2002); PMC, Inc. v. Kadisha, 78 Cal.App.4® 1368, 93 Cal.

Rptr.2d 663 (2000); City of Evanston v. Baird & Warner, Inc., 1989 WL

134310, 3 (N.D. Ill. 1989); Bischofshausen, Vasbinder, & Luckie v. D.W.

(continued...)

21

even when the defendant is the sole shareholder of a corpora-

tion. Cancun Adventure Tours v. Underwater Designer Co., 862

F.2d 1044, 1047 (4" Cir. 1988); Dillon, 597 F.2d at 563; One

Pacific Towers Homeowners’ Association v. Hal Real Estate

Investments, Inc., 30 P.3d 504 (Wash. App. 2001). As this Court

has said, “[l]imited liability is the rule, not the exception.”

Anderson, 321 U.S. at 361-62.

Thus. courts do not automatically impose strict liability on

corporate officers and owners. E.g., Browning-Ferris, 195 F.3d

at 956 (“the officer is (not) automatically liable for the acts of

the corporation; . . . there is no doctrine of ‘superiors’ liabil-

ity,’ comparable to the doctrine of respondeat superior, . .. .”).

Rather, courts look for actual participation or involvement in

the wrongful act. Mozingo, 752 F.2d at 173-74; Moss v. Ole

South Real Estate, Inc., 933 F.2d 1300 (5 Cir. 1991); Hilltop, 629

F.Supp. at 1303-04; RLG, 755 N.E.2d at 561; Bischofshausen,

Vasbinder, & Luckie v. D.W. Jaquays Mining & Equip. Contractors

Co., 700 P.2d 902, 908-09.

B. Courts Do Not Disregard Established Principles of

Corporate Law in Other Contexts of Significance, and

Have No Need to Do So to Protect the Important Inter-

ests of the Fair Housing Act.

This bedrock principle of corporate law is adhered to by

courts in many contexts, which, like fair housing, have critical

societal importance. For instance, courts have upheld this

(...continued)

Jaquays Mining & Equip. Contractors Co., 700 P.2d 902, 908-09 (Ariz.

Ct. App. 1985); Crigler v. Salac, 438 So.2d 1375, 1380 (Ala. 1983); -

Hilltop, 629 F.Supp. at 1304; Wicks v. Milzoco Builders, Inc., 470 A.2d

86, 90 (Pa. 1983); Scribner v. O'Brien, Inc., 363 A.2d 160, 168 (Conn.

1975); Fletcher Cyc. Corp., §§ 7, 14 (Perm. ed.) (“The shareholders of

ion, unless they personally participate, are not liable in-

a corporation,

dividually for torts committed by the corporation.”).

22

principle when determining whether officers or owners of

corporations responsible for environmental hazards are liable

individually. E.g., Browning-Ferris, 195 F.3d at 956 (remanded

to determine whether the defendant had actually “operated

the landfill personally, rather than merely directing the

business of the corporations of which he was the president”);

Riverside Mkt. Dev. Corp. v. Int'l Bldg. Prods., Inc., 931 F.2d 327,

330 (5™ Cir.), cert. denied by Riverside Market Ltd. Partnership v.

Prescott, 502 U.S. 1004 (1991) (CERCLA imposes liability only

on persons who actually participate in the operation of the

facility; thus, inactive shareholder and officer not personally

liable for environmental clean-up costs); U.S. v. Northeastern

Pharmaceutical & Chem. Co., Inc., 810 F.2d 726, 744 (8 Cir.),

cert. denied by 484 U.S. 848 (1987) (corporate officer individu-

ally liable under CERCLA, but only because he had person-

ally arranged for the transportation and disposal of hazard- ~

ous substances for the corporation); Shipley v. Perlberg, 780

A.2d 396 (Md. 2001) (corporate officer not personally liable

for negligent lead based paint poisoning of resident of prop-

erty that was owned by corporation because officer had no

involvement in decision making, maintenance, or rental

aspects.) Thus, while charged with the responsibility to en-

sure that important environmental goals are met, courts none-

theless refuse to hold corporate officers and owners person-

ally liable for violations of environmental laws committed by

their corporations or their corporations’ agents solely on the

basis of their corporate positions.

Neither do courts hold corporate owners and officers

strictly liable in the employment arena. E.g., Sasso v. Cervoni,

985 F.2d 49, 51 (2d Cir.), cert. denied by Bourgal v. Cervoni, 508

US. 973 (1993) (sole officer, director and shareholder not

liable for the ERISA obligations of his corporation

where he had not participated in wrongdoing and where

tion was not a sham); Whidbee v. McDonald's Corp., 75

F.Supp.2d 183, 193 (S.D.N.Y. 1999), aff'd in relevant part by

Whidbee v. Garzarelli Food Specialties, Inc., 223 F.3d 62 (2d Cir.

23

2000) (restaurant owners not personally liable under §1981

because there was no evidence of a “causal relationship”

between the owners and the alleged racial harassment of em-

ployees); Bramesco v. Drug Computer Consultants, 834 F.Supp.

120, 123 (S.D.N.Y. 1993) (Potential liability of the corporation

under Title VII or the ADEA does not “necessarily impute

vulnerability to suit on the part of its officers, directors or

owners . . . at least absent separate intentional misconduct.”);

Berry v. Stevinson Chevrolet, 804 F.Supp. 121, 133-34 (D. Colo.

1992) (corporation’s owner and manager not personally liable

for race discrimination because he had not participated in

discrimination; employees who had engaged in unlawful

discrimination were agents of the corporation rather than

agents of the owner/manager); Lawlor v. District of Columbia,

758 A.2d 964, 975-78 (Ct.App. DC 2000) (Father and daughter

shareholders / officers personally liable under the Wage Pay-

ment Law because of the level of their involvement in wrong-

ful act, while wife / mother, who was corporate secretary, not

personally liable because she had not meaningfully partici-

pated in the unlawful conduct).

Although these decisions are based on employment law

statutes that differ from one another as to their definitions of

an “employer”, whether an individual is within the definition

under a specific statute and may thus be held liable depends

on the individual's specific conduct and fault. This includes

considerations such as whether the corporate owner and/or

officer participated in or directed the wrongdoing, or whether

he/she knowingly acquiesced in the unlawful conduct. In

short, in the employment context, including the employment

discrimination context, where the law, like fair housing law,

seeks to guarantee equal treatment to groups of individuals

that have historically been discriminated against, liability is

fault-based, and not strictly imposed on individuals merely

because of their positions.

Courts in a wide range of other contexts, too, consistently

require evidence of individual fault before they hold a

corporate owner or officer personally liable for the wrongful

24

acts of the corporation's agent."° Of particular note is that

courts adhere to this established principle in product liability

cases, where public health and safety concerns are often

preeminent. For instance, the Fifth Circuit refused to hold the

corporation’s president personally liable for defects in a

cherry picker because the president's involvement in the

manufacture of the cherry picker was inadequate to warrant

such liability. Mozingo v. Correct Mfg. Corp., 752 F.2d 168, 173-

74 (5" Cir. 1985). The court noted that to be held personally

liable, an officer “must have some direct, personal participa-

tion in the tort, as where the defendant was the ‘guiding

spirit’ behind the wrongful conduct. . . or the ‘central figure’

in the challenged corporate activity.” Id., quoting Escrude Cruz

v. Ortho Pharmaceutical Corp., 619 F.2d 902, 907 (1* Cir. 1980).

C. There Is No Need to Abandon Traditional Principles of

Corporate Law to Prevent Injustice Because Existing

Principles Already Provide Victims With Just Remedies.

Some courts conclude that it is occasionally necessary to

adhere to traditional corporate law principles less rigidly in

order to prevent injustice. Mark v. Universal Builders, 501 F.2d

324, 337 (7™ Cir.) cert. denied by 419 U.S. 1070 (1974); Anderson,

321 U.S. at 356; Browning-Ferris, 195 F.3d at 959; Matchmaker,

982 F.2d at 1089-94. In such instances, courts have articulated

special doctrines or theories to “do right” by the innocent tort

victim by seeking a reasoned basis to impose what really is

fault-based liability on a corporate officer and owner.

A number of courts have applied the “participation theory,”

under which a corporate officer may be liable for the corpora-

'S E.g., Micro Chem., Inc., 194 F.3d at 1261 (patent infringement);

Coastal Abstract Serv., 173 F.3d 725 (9 Cir. 1999) (false advertising);

PMC, 78 Cal.App.4® 1368, 93 Cal.Rptr.2d 663 (intellectual property);

Rooney, III v. Commonwealth of Virginia, 500 S.E.2d 830 (Va. 1998)

(criminal embezzlement); Salac, 438 So.2d at 1380 (fraud); Scribner,

363 A.2d at 168 (construction defects).

25

tion’s breach of its duty to an injured third party, where the

corporation delegated this duty to the corporate officer and

where the corporate officer breached this duty through personal

fault. Saltiel, 788 A.2d at 271; Shipley, 780 A.2d at 396; Skelton,

1996 WL 278343 at 7-8; Wicks, 470 A.2d at 90."* The court in

Wicks thus noted that “[lJiability under this theory attaches

only where the corporate officer is an actor who participates

in the wrongful acts. Therefore, corporate officers may be

held liable for misfeasance.” 470 A.2d at 90.

Courts have also relied on the “responsible corporate officer

doctrine.” E.g., Commissioner, Indiana Dep't. of Envtl. Mgmt. v.

RLG, Inc., 755 N.E.2d 556 (Ind. 2001). The Supreme Court of

Indiana recently applied this doctrine to hold a sole share-

holder and corporate officer liable for the violation of a state

environmental law because of his direct involvement in the

violation, and not because of his corporate positions alone. Id.

at 561. In doing so, the court, relied on two decisions of this

Court, U.S. v. Dotterweich, 320 U.S. 277 (1943), and U.S. v. Park,

421 U.S. 658 (1975), and articulated the doctrine to require

that:

(1) the individual must be in a position of responsibil-

ity which allows him to influence corporate policies

or activities; (2) there must be a nexus between the

individual’s position and the violation in question

such that the individual could have influenced the

corporate actions which constituted the violations;

and (3) the individual's actions or inactions facilitated the

"© See Johnson v. Harrigan-Peach Land Dev. Co., Inc., 489 P.2d 923, 928

(Wash. 1971); Fletcher Cyc. Corp., §1137 (Perm. ed.).

” See U.S. v. Hodges X-Ray, Inc., 759 F.2d 557, 560-61 (6th Cir. 1985);

Saltiel, 788 A.2d at 268; Rooney, 500 S.E.2d at 830; Matter of Dougherty,

482 N.W.2d at 488-90 (Minn. Ct. App. 1992).

26

RLG, 755 N.E.2d at 561 (emphasis added), quoting Matter of

Dougherty, 482 N.W.2d 485, 488-90 (Minn. Ct. App. 1992).

In both Dotterweich and Park, tis Court was willing to hold

defendants liable for violations of the Federal Food, Drug and

Cosmetic Act, 21 U.S.C. §§ 301-92 (1938) only where it could

be shown that they “had a responsible relation to the viola-

tion of the statute” and not merely because of their corporate

positions. Park, 421 U.S. at 673-74; Dotterweich, 320 U.S. at 284.

The Indiana court summarized its analysis under the doc-

trine by indicating that it was not the defendant's

status as officer, director, or sole shareholder of RLG that

is determinative under this theory. Each of these in itself

may be sufficiently removed from the relevant corporate

activities that the individual is not a ‘responsible corporate

officer’ despite high corporate office. Rather it is Roseman’s

(the defendant) direction of and involvement in operating

the landfill, his representation to IDEM that he was the

responsible party, and his actual role in the corporation's

activities that are critical.

RLG, 755 N.E.2d at 561.

Thus, both the participation theory and the responsible

corporate officer doctrine are available to provide substantial

protection for the public and to prevent injustice to victims.

Under neither doctrine, however, is a corporate officer or

owner liable simply because of his position. There must be a

degree of wrongful conduct by the corporate owner or officer.

Finally, it is unnecessary to ignore established corporate

law principles to protect victims of misconduct by corporate

agents in any context, including fair housing. First, the vic-

tims may seek remedies from the corporations themselves.

Dillon, 597 F.2d at 563; Northside, 605 F.2d at 1353-54. Under

agency principles, a corporation can be sued and held liable

for the torts committed by its agents. Hydrolevel, 456 U.S. at

556; Moline v. IRS, 319 U.S. 436, 440 (1943) (corporate em-

27

ployee is the agent of the corporation, not the agent of the

officers or owners personally). Second, when the corporation

has insufficient assets, traditional legal principles provide a

remedy against corporate owners and officers by allowing,

under appropriate facts, p'ercing of the corporate veil. Best-

foods, 524 U.S. at 62-63; Anderson, 321 U.S. at 362; Browning-

Ferris, 195 F.3d at 959.

In sum, the principle that corporate owners and officers are

not personally liable for the unlawful conduct of the corpora-

tion’s agents solely on the basis of their corporate positions is

well-established and consistently upheld by courts—even

with regard to other issues of high societal concern. It is

unnecessary to disregard this principle to provide a remedy

for victims of wrongful conduct, whether such conduct be

discriminatory actions or other types of misfeasance, and this

Court should declare that the Ninth Circuit erred when it

did so.

IV. An Owner or Officer of a Real Estate Brokerage Corpora-

tion May Be Personally Liable for the Fair Housing Vio-

lations of a Corporate Agent Only If the Owner or Officer

Participated in, or Was Otherwise Specifically Responsi-

ble for, the Agent’s Conduct.

The correct answer to the question before this Court—

whether owners and officers are strictly and personally liable

for the Fair Housing Act violations by agents of the firm—is

aptly illustrated by prior decisions of courts that have started

with the basic tenet of corporate law that “no individual may

be held vicariously liable for a company pattern or practice

simply because she is an officer or manager of the company.”

U.S. v. Lorantffy Care Cntr., 999 F.Supp. 1045 (N.D. Ohio 1998).

A number of courts have refused to hold corporate owners

and officers liable under the Fair Housing Act by virtue of

their status alone. Reed v. Michael Realty & Associates, Inc., 1994

WL 559225 9, 10 (N.D. Ill. October 7, 1994); Heights Community

28

Congress v. Hilltop Realty, Inc., 629 F. Supp. 1232 (N.D. Ohio

1983), aff'd in part, rev'd in part on other grounds, 774 F.2d 135

(6" Cir. 1985), cert. denied by Hilltop Realty, Inc. v. City of

Cleveland Heights, 475 U.S. 1019 (1986). Accord, Lorantffy, 999

F.Supp. at 1045; Tillman v. Wheaton-Haven Recreation Ass‘n,

Inc., 517 F.2d 1141 (4th Cir. 1975). These courts have opted

instead for a thorough analysis of the facts regarding the

relationship between the corporate owners or officers and the

discriminatory conduct. This is the proper result and that

which this Court should adopt.

For example, in Hilltop, the U.S. District Court, District of

Northern Ohio, declined to hold Vincent Aveni, the president,

chief operating officer and co-owner of Hilltop Realty, Inc.,

vicariously liable for the fair housing violations of Hilltop

agents, absent a showing “that he participated in their acts or

knew of and ratified their acts and statements.” 629 F. Supp.

at 1304. The court recognized that the agents had a contrac-

tual relationship with the corporation, not with Aveni, so only

the corporation was liable for the imputed actions of the

agents, noting specifically that Aveni’s “status as president

and chief operating officer in and of itself does not render him

personally liable for acts of the corporation or its agents or

employees.” Id. at 1303-04."

In Lorantffy, the court found that four individual defendants

“associated with” a nursing home owned by a not-for-profit

corporation (relationship not specified) were entitled to judg-

ment as a matter of law. 999 F.Supp. at 1040-41. The law, the

court said, provides that “no individual may be held vicari-

ously liable for a company pattern or practice simply because

she is an officer or manager of the company.” Id. at 1044. The

'® The court also conducted a thorough review of the facts and

concluded that Aveni had not participated in, knew of or ratified the

discriminatory conduct, and refused to hold him liable on that basis

as well. Hilltop, 629 F.Supp. at 1305.

29

court held that the individual defendants could not be held

liable for the discriminatory conduct, and that only the “com-

pany is liable for the acts and statements of its employees.” Id.

at 1045. The court also noted that the other courts in its circuit

that had addressed similar violations of the Fair Housing Act

had applied the “doctrine of vicarious liability to the com-

pany, not the company’s individual officers.” Id., citing

Hilltop, 629 F.Supp. at 1303; Marr v. Rife, 503 F.2d 735 (6th Cir.

1974). See also Reed v. Michael Realty & Associates, Inc., 1994 WL

559225, discussed infra, and Tillman, 517 F.2d at 1144.

In Tillman, the Fourth Circuit held that §§1981 and 1982 of

the Civil Rights Acts of 1866 and 1964 “should be interpreted

as neither enlarging nor diminishing the liability of directors

under general corporation law for tortious acts performed

nominally by the corporation.” Id. The court was thus un-

willing to hold the directors of Wheaton-Haven Recreation

Association personally liable for discrimination by the As-

sociation by virtue of their positions as directors alone. Id.

Instead, the court engaged in a comprehensive examination

of the directors’ actions and intentions and reasoned that

“directors become personally liable when they intentionally

cause a corporation to infringe the rights secured by §§ 1981

and 1982.” Id. at 1146.

In sum, since owners and officers of real estate brokerage

corporations may not be held liable for the Fair Housing Act

violations of corporate agents merely by virtue of their

positions, such individuals may be held liable only on the

basis of personal fault or culpability for the discriminatory

conduct. Such a fault-based standard requires a showing that

the owner or officer personally participated in the discrimina-

tory acts, or that, in addition to serving as owner or officer,

the individual was actually engaged in conduct that led to the

Fair Housing Act violations. In those instances, liability may

be imposed in accordance with traditional corporate law prin-

ciples.

30

CONCLUSION

For the foregoing reasons, NAR respectfully urges this

Court to hold that owners and officers of real estate brokerage

corporations are not personally and absolutely liable for an

employee's or agent's violation of the Fair Housing Act. This

Court should reverse the Ninth Circuit and affirm the District

Court’s ruling that owners and officers of real estate corpora-

tions are not, as a matter of law, liable for the Fair Housing

Act violations of the firm’s agents. Personal liability of own-

ers and officers must be grounded in their personal participa-

tion in the allegedly unlawful conduct, or their personal

involvement in, or responsibility for, the real estate activities

out of which the alleged violation arose.

DATED: August 2, 2002

Respectfully submitted,

LAURENE K. JANIK

Counsel of Record

General Counsel

RALPH W. HOLMEN

Associate General Counsel

NAN ROYTBERG

Associate Counsel

National Association of REALTORS®

430 North Michigan Avenue

Chicago, Illinois 60611-4087

(312) 329-8375

Attorneys for Amicus Curiae

National Association of REALTORS®