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Real Estate Law

Supreme Court Limits Vicarious Liability Under the Fair Housing Act

In 2003, the United States Supreme Court was asked to determine whether individual officers or owners of a corporation, who did not personally engage in unlawful conduct relating to the Fair Housing Act, were nonetheless personally responsible for the unlawful conduct of a corporate employee. In the case of Meyer v. Holley, Mr. and Mrs. Holley were an interracial couple who tried to purchase a house in California. A real estate corporation listed the home for sale. The Holleys asserted that the realtor unlawfully discriminated against them.

The Holley’s filed a lawsuit against the real estate corporation, the employee who allegedly committed the discrimination and also against the president of the real estate corporation, who was its sole shareholder and its licensed "office/broker." The owner of the corporation neither participated in the alleged discriminatory conduct nor did he authorize the alleged conduct.

Under the Fair Housing Act, strict liability is imposed beyond that which is traditionally associated with the principal/agent or employer/employee relationships. The Supreme Court was asked to decide whether the owners or officers of entities were automatically liable for the wrongful acts of their employees or agents, even if the owners or officers were not involved in and did not direct or authorize the unlawful discriminatory conduct. This type of scenario often occurs when a property management employee engages in discriminatory acts that were not authorized by or known to the property owner.

Typically, an employer is vicariously liable for the acts of their agents and employees if they are acting within the scope of their authority or employment. But, unless there are special circumstances, a business that is operated as a corporation shields its officers, principals and owners from vicarious liability for the wrongful acts committed by the corporation's employees or agents.

The Supreme Court ruled that the owners or officers of a corporation may only be held liable for Fair Housing violations if they directed or controlled the person with respect to the unlawful act. The Supreme Court concluded that owner/broker of the real estate company was not liable for the unlawful acts of its real estate agent.

This article was originally published in 2008.


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