Real Estate Bias Case Tests Court
The justices of the U.S. Supreme Court struggled Tuesday to decide whether real estate brokers can be held liable for racial discrimination by their agents in a California case that pits the real estate industry against civil rights lawyers.
The Fair Housing Act forbids racial bias in the selling or renting of homes, but it remains unclear whether brokers and owners of real estate firms can be held liable for it.
By their comments and questions during Tuesday’s oral arguments, the justices indicated that they are unsure of the answer.
“Under California law, the broker is the principal,” said Justice Anthony M. Kennedy, a native of Sacramento. With that authority comes the legal duty to supervise agents, he suggested.
But Justice Antonin Scalia questioned whether a broker can be held personally liable when he works for a real estate firm.
“Does a designated broker exercise control [over agents] as an individual or as a supervisor?” Scalia asked. “As I understand California law, he only uses that license as an officer of the corporation.”
The split between Kennedy and Scalia highlighted the key issue in a housing bias case from Twentynine Palms.
Mary and Dave Holley, an interracial couple, set out to buy a new house in 1996 and had the money to pay the full asking price of $145,000. But they were allegedly turned away by agents of Triad Realtors in Twentynine Palms. Brooks Bauer, the builder who lost the sale, said one agent, Grove Crank, dismissed the Holleys as a “salt-and-pepper team.”
The Holleys and Bauer sued the agent and Triad Realtors for racial discrimination. When they learned that the agent and Triad had no assets, they amended their suit to include Dave Meyer, then Triad’s owner and broker.
A federal judge in Los Angeles ruled that Meyer cannot be held liable for what Crank did. Last year, the U.S. 9th Circuit Court of Appeals disagreed and said victims of proven bias can win damages from those who direct or control the sale of real estate.
The Supreme Court heard Meyer’s appeal Tuesday.
His lawyer urged the court to throw out the case against his client and to say corporate officials cannot be forced to pay personally for the acts of their employees.
“Mr. Crank was acting on behalf of Triad. He was not acting on behalf of Mr. Meyer,” said Douglas G. Benedon, an attorney in Woodland Hills.
Scalia said he agreed. “What’s the use of having a corporation then?” he asked.
But Kennedy stressed that real estate law in California puts the duty to supervise on the individual broker, not a corporation.
The Holleys’ plight was not discussed during the argument, though Justice Ruth Bader Ginsburg alluded to it. She told Meyer’s lawyer that the victims of bias would be left empty-handed if real estate brokers are shielded entirely. “Under your theory, there is no relief for the plaintiffs,” she said.
The lawyer for the Holleys insisted that real estate law in California and 38 states says the licensed broker bears the legal responsibility for the acts of his agents.
Robert G. Schwemm, a University of Kentucky law professor who argued for the Holleys, read the state form that Meyer signed allowing Crank to work as a real estate agent.
“He signed the letter for him. It says [Meyer] is the responsible human being, and that makes him liable,” Schwemm said.
A Bush administration lawyer argued that Meyer can be held liable, but not just because he is a licensed broker.
He was also the owner of Triad and the president of the corporation, according to the legal complaint filed by the Holleys.
“Taken together, these facts show Mr. Meyer exercised pervasive control of the company. And he negligently supervised Mr. Crank,” Malcolm L. Stewart, an assistant to the solicitor general, told the court.
Stewart urged the court to allow the claim against Meyer to go forward in a trial in Los Angeles.
The justices will meet behind closed doors to decide the case of Meyer vs. Holley. A ruling can be expected in several months.
