Last week’s decision in Shaw v. Cherokee Meadows, LP, 17-CV-610-GKF-JFJ, 2018 WL 3474082 (N.D. Okla. July 19, 2018) provides a good opportunity to revisit contribution and indemnity claims arising out failures to meet the design/build requirements in Section 3604(f)(3)(C) of the Fair Housing Act.* The question remains the same as always: does the law make any sense at all.**
The judge who decided Cherokee Meadows was faced with a split between two Circuit Courts of Appeal and no precedent from the Tenth Circuit, which Oklahoma is a part of. The leading case on contribution and indemnity in design/build cases was Equal Rights Center v. Niles Bolton Associates, 602 F.3d 597, 602 (4th Cir. 2010). In that case the Fourth Circuit held that the Fair Housing Act pre-empted any state law that might allow an owner to put off all or even part of the liability for design/build failures on a third party. The Court found that the owner had a “non-delegable duty”† to follow the law and that allowing any shifting of liability would encourage owners to evade that duty. Equal Rights Center punishes an owner who may be innocent while excusing those who are in fact guilty because, it appears, the Fourth Circuit views the purpose of the FHA as primarily punitive.‡
The judge also looked at City of Los Angeles v. AECOM Servs., Inc., 854 F.3d 1149, 1161 (9th Cir. 2017). In that case the Ninth Circuit observed that letting the architect and contractor off the hook for their mistakes didn’t exactly promote disability law compliance and, because owners necessarily rely on third parties to fulfill their legal duties, it was fundamentally unfair to let those parties off the hook. Thus in AECOM the Ninth Circuit allowed a contribution claim by the City against its contractors; that is, it allowed the City to put off part of its liability on the parties who were primarily at fault.
In Cherokee Meadows the Court decided to take a little from both cases. It agreed with the Fourth Circuit that an owner could not shift all the liability to a third party, but agreed with the Ninth Circuit that the owner should be required to force others to pay for their share of problem.
This compromise does not really make much sense. Common law indemnity is really just the most extreme version of contribution. If the owner’s fault is zero and the other parties’ fault is 100% then the owner pays nothing and the others pay everything, which is just like indemnity. In the case of FHA design/build liability the owner is very likely to end up with zero fault because the owner of an apartment development almost always relies entirely on third party architects, contractors and inspecting experts. They may have arguments among themselves about who is most at fault, but the owner is very likely to have no fault at all.
Most important though, Equal Rights Center itself doesn’t make sense because it adopts a rule that discourages rather than encourages design/build compliance. If the goal is to create accessible housing, and the problem is an apartment complex that is not accessible, the best way to achieve the goal is to bring as many parties and therefore as much money as possible to the table so the remediation work can be done. The plaintiff cannot be relied upon to sue everyone because he, she, or it may have a different agenda, or may simply want to minimize expense by having the simplest lawsuit possible. Allowing the owner or other defendants to drag in third parties is the best way to make sure the Court has all the guilty parties and all their money available for remediation.
The Equal Rights Center rule also misses the fact that when the plaintiff chooses to sue more than one defendant the court is going to have to allocate responsibility when the case is over. The Court can’t order the apartments remediated more than once, and that means deciding who pays for which parts of the remediation. If responsibility has to be allocated in any case it makes no sense to say that contribution and indemnity are forbidden by the FHA.
Finally, of course, the implication of Equal Rights Center is that owners, architects, contractors and other should not be allowed to buy insurance that would pay FHA claims. After all, insurance is just a form of contractual indemnity. But insurance is the best way to make sure there will be money for remediation, especially when the cost of remediation may be huge while the assets of the defendants are relatively small. Personal injury lawyers have long known that the best way to get compensation for someone injured in an accident is to find insurance; that is why drivers are required to have liability insurance in the first place.
At the end of the day the best way to make sure apartments are properly designed and constructed is to make sure every person who participated has to bear whatever share of the blame he or she should bear. Limits on contribution and indemnity do not promote, but discourage remediation by limiting the number of parties who can be brought to the table to contribute to the cost. Equal Rights Center was a perverse decision, and while Cherokee Meadows, like AECOM, is a step in the right direction, we won’t have laws that really promote accessibility until Equal Rights Center is definitively overruled.
* For non-lawyers, contribution and indemnity are ancient legal doctrines whose heart lies in the effort to be fair about who pays when someone is harmed by bad conduct. Indemnity is relatively simple. If I am legally responsible for something you did wrong and I have to pay somebody money as a result, you should pay me back because it was really your fault. It can also be a matter of contract. You may agree that no matter whose fault something is you will pay all the damages. This makes sense when the parties want to avoid a fight about whose fault something is, particularly if one of them has insurance to cover the loss.
Contribution applies when more than one person contributed to the harm. Most states have statutes with varying degrees of complication to decide how you split up the liability, but the basic principle is simple. If I have to pay more than my share for something that is also your fault then you should have to pay me back the extra that I paid.
**For background on this issue see our earlier blogs, “How courts have missed the point on ADA and FHA indemnity issues” and “Time for a do-over – the 9th Circuit gets indemnity and contribution right.”
† The notion of a “non-delegable duty” in the FHA comes from Walker v. Crigler, 976 F.2d 900, 904 (4th Cir. 1992), a race discrimination case. The Court found the owner couldn’t avoid liability for the misconduct of his agent because he could not delegate the duty to comply with the FHA to the agent. This works both ways. A good employee following orders from the owner is liable for discriminating because he or she carried out the owner’s discriminatory orders even if she did so against her will. See “Shoot the messenger! Agent liability under the Fair Housing Act.” Later comments from the Supreme Court about the FHA and traditional tort liability doctrine cast considerable doubt on the absolutist position taken by the Fourth Circuit in both Walker v. Crigler and Equal Rights Center. See, Meyer v. Holley, 537 U.S. 280, 290, 124 S.Ct. 824 (2003).
‡ We will have more to say about the politics of punishment in disability law cases in our next blog, which will come hard on the heels of this one.