Landlord & Tenant

Owner Vicariously Liable for Fair Housing Act Violation

Cleveland v. Caplaw Enterprises

NYLJ 5/23/06, p. 22, col. 1

U.S. Ct. App., 2^nd Cir.

(Opinion by McLaughlin, J.)

In an action by two prospective tenants against a building owner for a violation of the Fair Housing Act, tenants appealed from a District Court judgment dismissing the complaint. The Second Circuit reversed, concluding that tenants pled facts sufficient to support a claim of vicarious liability.

Building owner entered into a property management agreement with leasing agent under the terms of which agent would perform 'all reasonable services requested by [owner] in regards to operating, maintaining, servicing and leasing the property.' The agreement also provided that leasing agent would be the 'sole tenant contact.' When plaintiffs, two prospective black tenants, approached an employee of leasing agent, they were shown an apartment, executed a 1-year lease, and put down $100 toward a $650 security deposit. When they contacted the leasing agent about picking up the keys to the apartment, the employee with whom they had dealt was on vacation. The employee with whom they now dealt expressed reservations about whether prospective tenants were the 'right fit' for the apartment, indicated that another tenant had indicated he would not be happy if the apartment were rented to African-Americans. The employee then rented the apartment to another tenant. Prospective tenants then brought an action under the Fair Housing Act against leasing agent, and subsequently brought the instant action against the building owner, contending that the owner should be held vicariously liable for the allegedly discriminatory acts of the leasing agent. District Court dismissed the complaint and prospective tenants appealed.

In reversing, the Second Circuit rejected the district court's conclusion that prospective tenants had not raised allegations that would establish that the owner exercised control over the leasing agent. The court acknowledged the provision in the management agreement providing that leasing agent would be the 'sole tenant contact', but concluded that this language did not preclude the owner from directing the manner in which leasing agent dealt with current tenants, and did not deal at all with leasing agent's role with respect to prospective tenants like the ones at issue in this case. Hence, the court concluded that the leasing agent could have been acting as the owner's agent, which would subject the owner to vicarious liability under the Fair Housing Act.

COMMENT

In Mitchell v. Shane, 350 F.3d 39, the Second Circuit held that property owners could not be held directly liable for the discriminatory acts of their real estate agents because there was insufficient evidence that the owners were aware of the basis for the discrimination. In that case, an African-American couple argued that their bid was rejected and that they were denied the opportunity to counter-bid because of their race. But because there was insufficient evidence that the owners were aware of the prospective tenant's race at the time housing was denied, the owners were not held liable for the discrimination that occurred.

While Mitchell did not address vicarious liability of the property owner, a number of courts have held that an owner can be vicariously liable for a violation of the FHA without knowledge of the basis of the discrimination. In City of Chicago v. Matchmaker Real Estate, Inc., 982 F.2d 1086, the court held that the owner was vicariously liable for the discriminatory acts of his real estate agents, despite neither having knowledge of nor participating in these acts. In that case, the city's Leadership Council suspected that the property owners and real estate agents endorsed racially discriminatory policies, and sent several test groups as perspective tenants. In finding a clear pattern of discrimination, the court held the owners vicariously liable for the discrimination even though the owner explicitly instructed his agents not to discriminate. Similarly, in Hamilton v. Svatik, 779 F.2d 383, the court again held an owner vicariously liable for discriminatory acts of her agent. There, a black prospective tenant claimed the owner of an apartment and her agent were liable for violating the FHA because the agent refused to show the apartment after learning she was black. The court held the owner liable under the FHA for the wrongful acts of her agent, even though there was no evidence that the owner had participated in the incident.

Vicarious liability may not extend to an owner who has not explicitly or implicitly authorized an employee to act as a rental agent. Thus, in Reed v. Leadership Council, 1994 U.S. Dist. LEXIS 14412, the court denied the prospective tenant's motion for summary judgment against an owner because it was unclear whether an agency relationship existed between the owner and the party engaging in discrimination. In Reed, the owner's rental agent asked a janitor to show apartments, and the janitor engaged in prohibited discrimination. Because the janitor took on the duties of a rental agent without the owner's knowledge or consent, the court refused to award summary judgment against the owner, noting the absence of evidence that the owner had clothed the janitor with apparent authority. By contrast, the court did award summary judgment against the rental agent on a vicarious liability theory, relying on the rental agent's request to the janitor. See also Northside Realty, Inc. v. United States, 605 F2d 1348 [suggesting, in dicta, that an owner who wields little control over agents might not be vicariously liable].

Owner Vicariously Liable for Fair Housing Act Violation

Cleveland v. Caplaw Enterprises

NYLJ 5/23/06, p. 22, col. 1

U.S. Ct. App., 2^nd Cir.

(Opinion by McLaughlin, J.)

In an action by two prospective tenants against a building owner for a violation of the Fair Housing Act, tenants appealed from a District Court judgment dismissing the complaint. The Second Circuit reversed, concluding that tenants pled facts sufficient to support a claim of vicarious liability.

Building owner entered into a property management agreement with leasing agent under the terms of which agent would perform 'all reasonable services requested by [owner] in regards to operating, maintaining, servicing and leasing the property.' The agreement also provided that leasing agent would be the 'sole tenant contact.' When plaintiffs, two prospective black tenants, approached an employee of leasing agent, they were shown an apartment, executed a 1-year lease, and put down $100 toward a $650 security deposit. When they contacted the leasing agent about picking up the keys to the apartment, the employee with whom they had dealt was on vacation. The employee with whom they now dealt expressed reservations about whether prospective tenants were the 'right fit' for the apartment, indicated that another tenant had indicated he would not be happy if the apartment were rented to African-Americans. The employee then rented the apartment to another tenant. Prospective tenants then brought an action under the Fair Housing Act against leasing agent, and subsequently brought the instant action against the building owner, contending that the owner should be held vicariously liable for the allegedly discriminatory acts of the leasing agent. District Court dismissed the complaint and prospective tenants appealed.

In reversing, the Second Circuit rejected the district court's conclusion that prospective tenants had not raised allegations that would establish that the owner exercised control over the leasing agent. The court acknowledged the provision in the management agreement providing that leasing agent would be the 'sole tenant contact', but concluded that this language did not preclude the owner from directing the manner in which leasing agent dealt with current tenants, and did not deal at all with leasing agent's role with respect to prospective tenants like the ones at issue in this case. Hence, the court concluded that the leasing agent could have been acting as the owner's agent, which would subject the owner to vicarious liability under the Fair Housing Act.

COMMENT

In Mitchell v. Shane, 350 F.3d 39, the Second Circuit held that property owners could not be held directly liable for the discriminatory acts of their real estate agents because there was insufficient evidence that the owners were aware of the basis for the discrimination. In that case, an African-American couple argued that their bid was rejected and that they were denied the opportunity to counter-bid because of their race. But because there was insufficient evidence that the owners were aware of the prospective tenant's race at the time housing was denied, the owners were not held liable for the discrimination that occurred.

While Mitchell did not address vicarious liability of the property owner, a number of courts have held that an owner can be vicariously liable for a violation of the FHA without knowledge of the basis of the discrimination. In City of Chicago v. Matchmaker Real Estate, Inc., 982 F.2d 1086, the court held that the owner was vicariously liable for the discriminatory acts of his real estate agents, despite neither having knowledge of nor participating in these acts. In that case, the city's Leadership Council suspected that the property owners and real estate agents endorsed racially discriminatory policies, and sent several test groups as perspective tenants. In finding a clear pattern of discrimination, the court held the owners vicariously liable for the discrimination even though the owner explicitly instructed his agents not to discriminate. Similarly, in Hamilton v. Svatik, 779 F.2d 383, the court again held an owner vicariously liable for discriminatory acts of her agent. There, a black prospective tenant claimed the owner of an apartment and her agent were liable for violating the FHA because the agent refused to show the apartment after learning she was black. The court held the owner liable under the FHA for the wrongful acts of her agent, even though there was no evidence that the owner had participated in the incident.

Vicarious liability may not extend to an owner who has not explicitly or implicitly authorized an employee to act as a rental agent. Thus, in Reed v. Leadership Council, 1994 U.S. Dist. LEXIS 14412, the court denied the prospective tenant's motion for summary judgment against an owner because it was unclear whether an agency relationship existed between the owner and the party engaging in discrimination. In Reed, the owner's rental agent asked a janitor to show apartments, and the janitor engaged in prohibited discrimination. Because the janitor took on the duties of a rental agent without the owner's knowledge or consent, the court refused to award summary judgment against the owner, noting the absence of evidence that the owner had clothed the janitor with apparent authority. By contrast, the court did award summary judgment against the rental agent on a vicarious liability theory, relying on the rental agent's request to the janitor. See also Northside Realty, Inc. v. United States, 605 F2d 1348 [suggesting, in dicta, that an owner who wields little control over agents might not be vicariously liable].