On October 13, 2023, Magistrate Judge Peter Bray of the Southern District of Texas released a Memorandum and Order that analyzes the reasons for permitting an owner of multi-family properties to bring in every party that contributed to an FHA design/build violation. It is the right decision for the right reason, but also provides an opportunity to look again at the irrationality of earlier cases and the indemnity/contribution distinction.¹
The story is a familiar one. A serial plaintiff, Dana Bowman, sued the owner of an apartment complex and one of its principals for failing to design and construct the apartments in compliance with the design standards in 42 U.S.C. §3604(f)(3)(C). The owner of an apartment complex is liable for such failures, but almost never responsible for them. In most cases either the plans were wrong – in which case the architect or engineer made a mistake – or the contractor didn’t follow the plans – in which case the contractor made a mistake. It is usually a combination of the two.
The owner sought to shift liability to the four entities that provided architectural and engineering services by filing a third-party complaint against them. After some procedural matters were tidied up these third-party defendants sought to have the case against them dismissed because, they argued, federal law preempts any effort to shift liability away from the owner to others through a state law claim for professional negligence. The argument is that if any liable party can shift its liability so some other party it won’t have any incentive to obey the laws. See, Equal Rights Ctr. v. Niles Bolton Assocs., 602 F.3d 597, 602 (4th Cir. 2010). It is an idiotic argument for reasons that I’ve explained in previous blogs.
Magistrate Judge Bray correctly noted that Equal Rights Ctr. only discussed claims for indemnity; that is, claims where the owner sought to shift 100% of the liability to a third party. Passing over various post Equal Rights Center cases at the district court level he turned to City of Los Angeles v. AECOM Servs., Inc., 854 F.3d 1149 (9th Cir. 2017) a case that discussed contribution. A contribution claim seeks to shift to a third party only as much of the liability as they are responsible for. In AECOM the Ninth Circuit found that shifting the appropriate liability to responsible parties was not preempted by federal law, and in fact served the purpose of federal law by giving every party involved in the design and construction of a building or other facility an incentive to follow the law.
Magistrate Judge Bray found that contribution claims against the third party defendants were permitted because, after all, they would only be responsible for FHA violations found in the plans for which they were responsible. The possible role of the contractor in not following plans was not discussed because the owner didn’t seek to make the contractor a party.
The opinion isn’t lengthy and reaches the correct result because the Court did not have to address the problematic distinction between indemnity and contribution in this context. Suppose the architect delivers defective plans and the contractor follows them perfectly. If the architect is liable for its share of responsibility it will have to bear 100% of the loss – there is no one else to blame. From the owner’s perspective the same result is reached if the architect and contractor between them share 100% of the blame. Two claims for contribution amount to one claim for indemnity because if the architect and contractor each bear their fair share of the loss the owner ends up with no responsibility. Depending on the state law of contribution the owner may be out attorneys fees and litigation costs, but won’t pay anything to fix the property.
A distinction between contribution and indemnity based on the percentage of the liability that is shifted from the owner to third parties doesn’t really make sense. There may be public policy reasons not to allow an owner to require the architect or owner to contractually indemnify the owner for more than their share of responsibility but even this is doubtful. When a contractual indemnity shifts liability away from a party who may have no assets (like a single asset entity that has sold the property and distributed the profits) to a party that has assets or insurance, then shifting liability gets the job done by providing money to fix the property. It seems unlikely the Fair Housing Act’s design and construction provisions were intended by Congress as a means of shaming the parties involved in the design and construction of multi-family properties. The goal, I think, was to create accessible housing, and that goal requires looking for money, not punishing parties who happen to have statutory liability for the mistakes of others.²
Rant: assigning moral blame to discrimination defendants dates to the days of race and religious discrimination when an evil intent to discriminate was an element of the claim and the intent to discriminate was clearly evil. Design/build discrimination imposes no fault liability for which having an evil intent is irrelevant. Despite this plaintiffs hysterically treat everyone involved in the design and construction of multi-family housing as having evil intent, comparing even accidental errors in design or construction to the practice of putting out “whites only” signs from the era of legal segregation. Plaintiffs should focus on getting the job done instead of arguments about morality that ultimately result in letting the most responsible parties escape liability.
¹ See, Indemnity and Contribution under the Fair Housing Act and the earlier blogs with links within it.
² It is worth noting that even claims for indemnity do not relieve the owner of liability unless the indemnifying party has the money to fix the problem. Contribution and indemnity only improve the likelihood that someone with money or insurance will pay to fix the problem; they do not relieve the owner of its ultimate liability if no one else can pay.