Guidance from HUD and DOJ is nice to have, but ultimately the courts are responsible for deciding what the Fair Housing Act means. In Fair Hous. Rights Ctr. in Se. Pennsylvania v. Post Goldtex GP, LLC, 2016 WL 2865733 (3d Cir. May 17, 2016) the Third Circuit confirmed HUD and DOJ’s position that FHA accessibility standards do not apply to pre-1991 buildings, even if they have been for the first time converted to residential use. This will help urban project developers who want to preserve historic structures but find it impossible to make new residences meet all of the FHA accessibility guidelines. More
Just after posting yesterday’s blog on the perils of being ignorant in FHA matters I received a copy of a recent charge of discrimination showing how reasonable accommodation can be done wrong. You can read the complaint here. The facts as presented in the charge show that the landlord made three important mistakes when refusing a request for a reasonable accommodation. The first was the manager’s absolute refusal to consider modifying the apartment’s no pet policy in response to the first request for accommodation. Absolute refusal is never the right way to respond to an initial request for accommodation because it fails the requirement that the management engage in an interactive process with the tenant. More
Ignorance of the law is never a good idea. In a May 2, 2016 decision from the First Circuit it became clear that ignorance can be expensive. Castillo Condo. Ass’n v. U.S. Dep’t of Hous. & Urban Dev., 2016 WL 1732499 (1st Cir. May 2, 2016). The case was, as the Court observed, fact intensive, but a couple of observations about ignorance of the law explain much of the outcome.
The original complaining party, Carlo Giménez Bianco (“Giménez”) suffered from depression and anxiety. He wanted to keep his dog despite the Castillo Condominium’s no pets policy. He asked, he was rebuffed, and he moved out. He then filed a fair housing complaint. HUD’s initial investigation resulted in a charge of discrimination, which was referred to an Administrative Law Judge. The ALJ concluded after an evidentiary hearing that Giménez was not disabled and therefore not entitled to an accommodation. This decision was appealed to the Secretary of Housing and Urban Development, who reviewed the evidence and reversed, finding that Giménez was disabled. The case went back down to the ALJ to assess damages and penalties. The ALJ awarded only $2,000 in damages and a $3,000 penalty. The latter was based on his finding that the Condominiums were not motivated by malice, but were simply ignorant. This went back up to the Secretary, who again disagreed, raising the damage amount to $20,000 and imposing the maximum penalty, $16,000. The Secretary found that ignorance was an aggravating rather than a mitigating factor, and justified the maximum penalty. The Secretary’s decision was appealed to the First Circuit, which ruled in favor of the Secretary on every count. More
By Richard Hunt in Accessibility Litigation Trends, FHA, FHA Statistics, Landlord-tenant, Multi-Family Tags: Fair Housing, Fair Housing Training, FHA, FHA Litigation, HUD, HUD guidance, HUD policies, HUD regulations
Today’s press release concerning HUD’s Fair Housing Initiative Program (“FHIP”) says all you need to know about HUD’s approach to eliminating housing discrimination. Out of more than $37 million dollars made available to improve fair housing in this program, HUD is spending about 20% on programs intended to educate the public and business about their rights and obligations, while 80% goes to funding private organizations that are in the business of either suing folks or filing HUD complaints. HUD is clearly much less interested in helping people obey the law than in punishing people who fail to obey it. The press release ends, of course, with information on how to file a complaint with HUD. There’s no mention of where to go for education on following the law. More
We’ve blogged more than once about the ongoing question of whether a current owner of a property built after the FHA guidelines became effective can be liable under the design/build provisions of the Fair Housing Act. (Click, here, and here). A March 31, 2016 decision from the United States District Court for the District of Maryland (Equal Rights Center v. Equity Residential, Case No. 1:06-cv-01060-CCB, Document 283) adds some important clarity to this issue, but not without raising other issues.
In Equal Rights Center the first issue the Court considered was whether various entities that were successors to the original owner and builder could be liable under the design/build provisions of the FHA. The Court looked at two theories; veil piercing and successor liability, to decide based on undisputed facts that some could and some couldn’t. Where there was liability the Court found that the predecessor was:
- merely an agency or instrumentality of the current owner, giving rise to veil piercing, and/or
- part of a continuous enterprise giving rise to successor liability
In every case the Court applied federal common law. As it applied the law, the effects on traditional development structures is dramatic:
First, the Court found that when the ownership of a property owning entity changed the entity had successor liability, apparently to itself. This analytical step is puzzling since the property owning entity did not change and would, under traditional standards, continue to be liable regardless of any changes in ownership.
Next, if the original property owner was a typical subsidiary or subsidiary of a subsidiary of the ultimate corporate owner the Court concluded that veil piercing was always appropriate. The Court explained this holding as follows:
It would be fundamentally unfair to limit liability to these entities which serve as nothing more than vehicles for holding Equity’s property assets. Further, it would frustrate the purpose of the FHA’s broad remedial scheme* to allow Equity to escape liability simply because it established separate subsidiaries to hold each of its properties.
The Court did not require any element of fraud or misuse of the corporate structure, both of which are the typical hallmarks of veil piercing. Instead it applied “no fault” veil piercing in which the subsidiary structure is simply disregarded for public policy reasons.
Moreover, the Court refused to consider the implications of the timing of control; that is, the Court looked at control of the property owning subsidiary not at the time of construction, but rather at the time Equity obtained complete control by buying out its development partner. Under these holdings the ultimate corporate owner of any traditional development subsidiary or partnership will always be liable for its subsidiary’s FHA violations. This denies developers any protection from the FHA through the use of typical development structures that suffice with respect to every other kind of liability.
The second important holding from the Court is that violations of the statute will be measured by a purely objective standard; that is, the FHA Design Manual or one of the other safe harbors in the statute. This is appropriate, the Court held, because:
requiring a plaintiff to make an ill-defined subjective showing of inaccessibility—that is, allowing a defendant to escape liability simply by showing that some disabled persons can access a property—cuts against the “broad remedial intent of Congress embodied in the [FHA]”
In keeping with this holding the Court rejected evidence from two experts that the property was in fact accessible, choosing a regulatory theory over actual facts. This holding means that the standards intended by Congress to be a safe harbor standard have been converted into a national building code for multi-family housing, which Congress certainly did not intend. In short, the FHA is not an anti-discrimination law; it is a building code that applies regardless of whether any disabled person is ever affected.**
Equal Rights Center v. Equity Residential was first filed in 2006, and it seems reasonable to conclude that the defendant is not simply going to give up after 10 years of litigation in the District Court. It therefore remains to be seen whether the 4th Circuit will agree with any of the District Court’s departures from traditional legal principles. One thing, however, is certain. There will be more litigation, and plaintiffs will not be deterred from suing the ultimate parent entities by the ownership structures created to insulate the ultimate owners from liability of all kinds.
*”broad remedial scheme” is, in general, a phrase used by courts just before they throw out the actual words of the statute in favor of enforcing the law the court believes Congress should have written.
**As recently as March 23, 2016 another Court found that disputes about actual accessibility despite deviations from the safe harbors created a fact issue: