Liability in Home Sale Bias Limited

The owners and officers of a real estate firm cannot be forced to pay out of their own pockets for racial discrimination practiced by one of the agents, the Supreme Court ruled Wednesday, dealing a setback to an interracial couple who say they were turned away from buying a house in Twentynine Palms.

The 9-0 decision limits the reach of the federal Fair Housing Act, which bars racial discrimination in real estate sales and rentals.

Under the law, victims of racial bias can sue agents who discriminate against them or the corporation that employed the agents. However, the victims generally cannot sue the owner of the incorporated firm.

There is “no special kind of liability” in the field of real estate or civil rights law that would force the owner to pay out of his own pocket for the acts of an agent, Justice Stephen G. Breyer said. If this were the legal rule, “every corporate supervisor [could be] personally liable without fault for the unlawful act of every corporate employee,” he said.

The ruling reverses a decision by the U.S. 9th Circuit Court of Appeals. However, the justices left the door open for the plaintiffs in the case, Mary Ellen and Dave Holley, to argue in the lower court that the firm’s licensed broker can be held liable for discrimination by an agent he supervised.

California law puts special duties on the shoulders of a licensed broker, Breyer said. But rather than resolve the matter, the justices sent that issue back to California for a lower court to consider.

The mixed result gave both sides something to cheer.

The case had drawn wide attention in the real estate industry because the Supreme Court had not ruled directly on who can be held liable for racial discrimination in the sale and rental of housing.

But the Holleys’ case was something of an oddity because neither the agent who was accused of gross bias nor the firm that employed him had significant assets. The company’s liability insurance policy did not cover deliberate acts of discrimination.

For that reason, the Holleys’ lawsuit targeted the firm’s owner and chief broker, David Meyer.

In 1996, the Holleys told a local builder they were willing to pay the full price of $145,000 for a new home under construction.

But they say that when they went to Triad Realtors, which was showing the property, their offer was turned away. The builder, Brooks Bauer, inquired when he learned that the Holleys had not submitted an offer, and he said the agent, Grove Crank, derided the couple as “a salt-and-pepper team” and used other racial slurs.

By then, Bauer had sold the house to another buyer for $20,000 less than the Holleys were willing to pay.

The Holleys and Bauer joined in a suit against Crank, Triad Realtors and Meyer, its owner.

A federal judge in Los Angeles threw out the suit against Meyer. But the 9th Circuit revived the claim and ruled that because of the “overriding societal priority” in ending racial discrimination in housing, liability should extend to all those who can “direct or control” the sale of real estate.

In his appeal to the Supreme Court, Meyer said this broad rule was unfair because he did not know of and certainly did not approve of Crank’s biased behavior.

In Wednesday’s ruling, the high court narrowed the reach of the federal civil rights law and rejected the 9th Circuit’s broad approach to liability.

Douglas Benedon, a Woodland Hills lawyer for Meyer, said he considered the decision a significant victory.

“We’re pleased with the holding. They rejected the notion of individual liability based solely on the right to control” the real estate transaction, he said. “This wipes out the 9th Circuit’s opinion. Unfortunately for Mr. Meyer, it’s not over yet.”

The case now goes back to the 9th Circuit, lawyers said.

“We think there is a good argument [that Meyer] would be liable under California law,” said Elizabeth Brancart, a fair-housing lawyer who represented the Holleys. “He was the only professional licensed to oversee the activities of the agents.”

Attorneys on both sides said they wished the Supreme Court had resolved all the legal issues in one ruling, rather than leaving some undecided.

June Barlow, general counsel for the California Assn. of Realtors, said she was pleased that the decision puts the liability on those who deserve the blame.

“The wrongdoers should be punished through the ordinary rules of liability,” she said. “If you are personally involved in the discrimination, as a broker or agent, you can be liable.”

The 9th Circuit’s decision was troubling, she said, because it extended personal liability to owners of real estate companies who had nothing to do with the discrimination.

The high court’s ruling in Meyer vs. Holley marked the second unanimous reversal in two days of a 9th Circuit ruling.

On Tuesday, the justices broadened the reach of criminal conspiracy law and allowed the government to prosecute two men who showed up to pick up a truck containing drugs a day after agents seized the drugs. The 9th Circuit judges, taking a narrow view, said these “bit players” could not be charged after the conspiracy had been broken up.