Per Se Liability for Business Owners Under Fair Housing Act Rejected

Article

The Employment and Labor Law Alert

February 14, 2003

The United States Supreme Court recently handed down a victory for business owners, declining to expand vicarious liability for individual business owners based on the discriminatory acts of their agents. In Meyer v. Holley, 123 S. Ct. 824 (January 22, 2003), the Supreme Court concluded that owners of real estate agencies cannot be held liable for the discriminatory acts of the agents of the company.

In Meyer, a real estate agent refused to sell a house to the Holleys, an interracial couple. The couple sued the agent, the agency which employed him, and Meyer, the corporate officer/president/owner of the agency, alleging violations of the Fair Housing Act. The Fair Housing Act forbids “any person or other entity whose business includes engaging in residential real estate-related transactions” from discriminating on the basis of race. The United States District Court for the Central District of California dismissed the suit against Meyer, finding that his position alone did not impose vicarious liability. On appeal, the United States Court of Appeals for the Ninth Circuit, concluding that the Fair Housing Act imposed an elevated level of liability, reversed the District Court and held that Meyer, as the owner of the agency, could be sued for damages on the basis of his employee’s conduct.

The Supreme Court considered Meyer’s liability on appeal and concluded that, while the Fair Housing Act clearly imposes liability on a company itself for the conduct of employees acting in the course of their employment, liability for the individuals who actually own the companies is not clear. Specifically, the Supreme Court noted, the Fair Housing Act provides tort remedies for its victims. Thus, in accordance with traditional agency principles, vicarious liability is imposed upon a corporate employer for the acts of its agents in the scope of their employment, regardless of the fault of the entity. But tort principles create no such liability for owners or officers, merely on account of their position. And the Court found nothing in the Fair Housing Act to indicate any intent to create such automatic liability for owners, and, in the absence of contrary intent, concluded that ordinary rules of liability should apply. It thus rejected the Ninth Circuit’s conclusion that the Fair Housing Act mandates “nontraditional vicarious liability” for owners. While acknowledging that eradication of discrimination is an “overriding societal priority,” the Supreme Court stated that even such a legislative goal does not carry with it a per se liability for corporate owners.

Nevertheless, the company president is not immune from liability altogether – as he was the sole stockholder, and apparently functioned as the company’s alter ego, concepts which the Ninth Circuit did not consider – it is possible that the corporate veil should be pierced, thereby creating liability. The Supreme Court, therefore, remanded consideration of alter ego liability to the Ninth Circuit.

Although the Court’s analysis was limited to the Fair Housing Act, to the extent this decision acknowledges the application of traditional vicarious liability rules in the context of discrimination, its opinion appears equally useful for Title VII cases or state employee protection act suits. In sum, simple ownership of a company, without more, is inadequate to impose per se liability for discriminatory acts by employees or agents.