MEYER v. HOLLEY
The Fair Housing Act (FHA) forbids racial discrimination in respect to the sale or rental of a dwelling. The Holleys, an interracial couple, alleged that a Triad real-estate corporation sales representative prevented them from buying a Triad-listed house for racially discriminatory reasons. The Holleys filed suit against the sales representative and David Meyer, Triad's president, sole shareholder, and licensed "officer/broker," claiming that he was vicariously liable for the sales representative's unlawful actions. The District Court dismissed the claims, stating that the FHA did not impose personal vicarious liability upon a corporate officer or a "designated officer/broker." In reversing, the Court of Appeals ruled that the FHA imposes strict liability principles beyond those traditionally associated with agent/principal or employee/employer relationships.
Does the Fair Housing Act impose personal liability without fault upon an officer or owner of a residential real estate corporation for the unlawful activity of the corporation's employee or agent?
Legal provision: Fair Housing
No. In a unanimous opinion delivered by Justice Stephen G. Breyer, the Court held that the FHA does not impose liability without fault upon the employer in accordance with traditional agency principles. In other words, the FHA normally imposes vicarious liability upon the corporation, but not upon its officers or owners. In the absence of a clear indication of congressional intent to abrogate the common law principles of vicarious liability, the Court reasoned that neither the right of the officer to control the salesperson nor the overriding societal priority of the FHA's objectives warranted extending tort-related vicarious liability rules to include the officer. The Court also reasoned that nothing in the FHA supported imposing a non-delegable duty upon the officer to ensure that its salesperson did not discriminate.
Argument of Douglas G. Benedon
Justice Stevens: We will now hear argument in Number 01-1120, Meyer against Holley.
Mr. Benedon: Justice Stevens, and may it please the Court:
The question... excuse me.
The question presented should be answered with the following bright line rule: Imposition of vicarious liability under the FHA should be determined by application of established rules of corporate and agency law not criteria unique to the FHA.
Under these principles, corporate shareholders and officers are not vicariously liable for the torts of the other agents of the corporation.
The Ninth Circuit held that a different rule should apply under the FHA, that vicarious liability could be based on control alone.
That is not, nor should it be, the law.
While the starting... the starting point for the analysis is necessarily the statute itself, while Congress has authority to expand the class of persons liable for violation of a Federal law, when it has done so, it has done so expressly.
The FHA was never... which neither defines nor expands the class of persons liable under the act, and as this Court stated in Bestfoods, this silence is dispositive.
Specifically, Congress has spoken directly when it has wished to impose a control test.
Justice Kennedy: Suppose... suppose that I were to agree with you and the Court were to agree with you as to your criticism of the Ninth Circuit's reasoning and... and that it agreed with you too that general principles of agency and corporate liability apply.
Based on this record, could we go on to say that under California law and real estate law generally, the real estate salesman is the agent of the broker, and therefore the broker is liable under agency law?
Mr. Benedon: --The answer--
Justice Kennedy: Or... or would I have to... would we have to remand before we did that?
Because this is discussed in the... in the respondents' brief, and the respondent makes it quite clear.
And maybe you disagree, but the... the law is cited on page 15 of the red brief, that under California law, the broker is the principal.
And I take it the principal would be liable under respondeat superior in this case.
Mr. Benedon: --Correct, Your Honor.
Justice Kennedy: If... if we find who the principal is, we know the principal is going to be liable.
Mr. Benedon: That's where--
Justice Kennedy: Under California law the broker is the principal.
Mr. Benedon: --My... Your Honor, my answer to that is... is several-fold.
First, the distinction needs to be made between a corporate broker and an individual broker.
Mr. Meyer in this case is a corporate officer who holds a broker's license solely as the officer of the corporation.
The corporation is the employer of the agent.
The agent operates under the license held by the corporation.
Justice Kennedy: But isn't it fair to say that... or isn't it?
Maybe you'll take issue with this, that the corporation operates as a broker only because it has the individual's broker license assigned to it.
Mr. Benedon: It has to, Your Honor.
A corporation as a paper person needs human beings to fulfill the function that a corporation must do, as does any corporation.
There will always be supervising officers--
Justice Kennedy: Is... is there any California law saying that... that the corporation is the principal in a situation like this and not the holder of the... not the... not the named broker?
Mr. Benedon: --The named broker, again... to answer your question, no, not that I'm aware of.
Justice Kennedy: This... this is a--
Justice Scalia: --Let me ask the opposite.
Is there any California case in which the named broker in the corporation has been held liable as the principal solely because he's the named broker?
Mr. Benedon: Not the designated officer, Your Honor.
The corporation has been held liable.
Justice Scalia: Yes.
That's what I'm talking about.
Mr. Benedon: But not the designated officer/broker.
Justice Ginsburg: So--
--Is there a difference in the licenses, the individual license that Justice Kennedy was referring to and that's mentioned on page 15 of the red brief, the individual broker license and the statement that the individual broker licensee is vicariously liable and the broker who holds the license under the corporate name?
Are those different certificates?
Mr. Benedon: Absolutely, Your Honor.
There are separate licenses issued by the Department of Real Estate in California: one to individuals who act as brokers, and one to individuals who are brokers only in their capacity as officers of a corporation.
Those are separate licenses.
The only license in this cases was held by Mr. Meyer as an officer of the corporation.
He could not step outside the corporation and act as a broker.
His existence as a broker depended on the corporation.
He could not transact--
Justice Stevens: May I ask you this question?
You explained to Justice Scalia that there is no California case holding a corporate broker liable in this situation, as I understand.
Are there any California cases going the other way?
Has it ever... has the issue ever been presented to the California courts?
Mr. Benedon: --Yes, it has, Your Honor.
In two cases, there have been, one... one State case and one district court case cited in our... in our briefs, In the... re Grabau case.
They've held that the California statutory scheme imposes only a disciplinary remedy for any violations of the scheme such that a broker... a designated officer/broker who violates any of the provisions of the statute may be subject to discipline, but is not the basis of a civil action.
Justice Stevens: So in this case the individual could be subject to discipline, but not to liability.
Mr. Benedon: Correct.
Justice Stevens: --Yes.
Justice Scalia: What were your other reasons.
You said you... you had a multi-faceted answer, or something like that.
What... what are the other--
Mr. Benedon: The--
Justice Scalia: --prongs or the other facets of your answer?
Mr. Benedon: --The other facets is that liability under the FHA cannot be premised on California agency law.
There, the... the agency under the FHA is determined on Federal rules of agency.
To determine Federal agency, this Court held in General Contractors, you look to the Restatement which has a two-prong test.
One is the right of control, but the other is that the person controlled has to be acting on behalf of the principal.
Here, the agent works... is working on behalf of the corporation.
In this case when Mr. Crank went out and did real estate transactions, he was acting on behalf of Triad.
He was not acting on behalf of Meyer.
The problem with looking at each State's structure is we're going to end up with a patchwork construction of a Federal statute.
The law may be different in Nevada than from Oregon than from Washington than from West Virginia.
Justice Ginsburg: Is that--
Justice Kennedy: --Suppose it were the majority rule that a real estate broker is the principal for the salesman.
Would we follow that rule generally?
Mr. Benedon: Again, Your Honor, the--
Justice Kennedy: And again, I'm... I'm referring to the red brief at pages 14 and 15 which sets this... this out.
You say there's a distinction because there's a corporate broker and... and an individual broker.
Mr. Benedon: --Correct.
Justice Kennedy: Now, we... I... we can explore that a little bit.
But suppose it were the... the general rule in most of the States that had addressed the subject that the broker is the principal.
Mr. Benedon: To answer that question, I think you still need to make a distinction between individual brokers and corporate licensed brokers.
We do not dispute that--
Justice Kennedy: Well, I... I was simply addressing the point of whether or not State law as opposed to Federal law controls.
And if it's the general law in most States that the broker is the principal, then that would certainly be sufficient for the imposition of liability under this Federal scheme.
Would it not?
Mr. Benedon: --Again, I... I disagree, Your Honor.
I would say that the rules still... you need to still look at the Federal law of agency rather than how the State defines the relationship between the broker and the agent.
You... again, you look to the Federal rules of agency to determine agency under the FHA.
Justice Ginsburg: I thought you said those were general common law principles that are... presumably the States would share.
Mr. Benedon: The general law principles applied in the broker/agent context would establish that the agent... the sales agent... is the agent of the principal broker when the broker is acting in his individual capacity when the agent is acting on behalf of the principal, of the individual broker, and subject to that broker's control.
The situation is different when it's a officer/broker who is not... the agent in that situation is not acting on behalf of the officer.
He's acting on behalf of the corporation.
Justice Ginsburg: Then if I understand your argument correctly, you're saying that the discussion, whether it's California law or Federal common law, is in this case at least academic because under California law, if you were to apply it, there is no relief for these plaintiffs, that the only remedy where it's... the license is held in the corporate name is a disciplinary sanction?
Mr. Benedon: To date, that is how California has treated violations of the California statutory scheme.
Correct, Your Honor.
Justice Scalia: Only... only by these corporate brokers or... or by... by individual brokers?
Mr. Benedon: Excuse me, Your Honor.
Individual brokers as well.
Justice Scalia: Okay.
Mr. Benedon: It's a statutory scheme that applies to brokers in general and salespersons in general who... who allegedly violate the act.
Justice Ginsburg: But I thought you said that if... if this were a license to an individual broker, if this were held... the license were held by Meyer as an individual... that he would then have a principal agent relationship with Crank.
Is that not so?
Mr. Benedon: That is correct, Your Honor, if it's an individual broker's license.
I think I may have caused some confusion.
Under general principles of agency law, common law principles of agency law, the sales agent is in an agent principal relationship with an individual broker.
If there is a violation of the act by the broker under California law, then he would be subject to disciplinary action.
That is separate and apart from vicarious liability under the FHA, which would adhere based on the principal agent relationship.
Justice Ginsburg: Is there an issue in this case about piercing the corporate veil as a means of holding Meyer liable?
Mr. Benedon: Not in this case, Your Honor.
We hold that the theory and doctrine of corporate veil-piercing is... is available in the appropriate case as it would be under any case under the general common law, although here it's been... it wasn't raised and it's been waived, and it's never been proven.
Justice Ginsburg: But they came--
Justice O'Connor: --Was there some reference to veil-piercing in the respondents' brief in the Ninth Circuit?
Mr. Benedon: On the last page of argument in a footnote, Your Honor, there's a reference arguing that based on sole ownership, that they could establish an alter ego, but as a matter of law, that's insufficient to establish alter ego.
Justice Scalia: Well, didn't... refresh my recollection.
Doesn't this come up on a motion for summary judgment?
Mr. Benedon: First a motion to dismiss, Your Honor--
Justice Scalia: Yes.
Mr. Benedon: --followed by a--
Justice Scalia: Which was denied and then there was a motion for summary judgment.
Mr. Benedon: --The motion for dismiss was granted in part, Your Honor, as to all the State law claims--
Justice Scalia: Okay.
Mr. Benedon: --the 1981 claim, and it proceeded just on the FHA claim.
Justice Scalia: Right.
Now, so if it came up on a motion for summary judgment, then whatever... whatever evidence the plaintiffs were going to rely on for the veil-piercing would have had to have been brought forward.
Isn't that right?
Mr. Benedon: Absolutely.
Justice Scalia: And what did they bring forward?
Mr. Benedon: Nothing, except sole ownership.
Justice Scalia: Sole ownership is the only thing--
Mr. Benedon: Which is in dispute.
Which is in dispute.
We maintain that ownership was, in fact, transferred, but we are assuming for the purpose of this proceeding that there is in fact ownership resided in Mr. Meyer.
Justice Ginsburg: --I thought that if... that a judgment winner, as the Holleys are at this stage, can defend the judgment on another ground.
In other words, the Ninth Circuit ruled in their favor and now they're saying, well, here's another theory on which we could prevail.
I didn't know... certainly they can't get an immediate victory, but if they attempt to defend the judgment on that basis, aren't they then entitled to go back and make the case rather than taking from them their victory and saying you lose?
They say, but we have another theory that would be viable.
Up till now, we won with this one.
Why isn't that altogether appropriate they should now be given a chance to air that other theory in support of the judgment?
Mr. Benedon: They... the theory was never raised below.
An alter ego is in and of itself a fact-driven inquiry.
Where it's... and so the fact that it wasn't raised below, it's... it's now been waived.
It can't be raised for the first time in this Court.
Justice Scalia: Even if... even if it had been raised, my understanding is in... in order to have it sent back on the... on the basis that although the court below relied on one theory, it could have relied on the other, the motion for summary judgment put the plaintiff to his proof to... to at least come up with facts, the assertion of facts, not the demonstration of them, but the assertion of facts that would support the other theory.
And the only fact contained here is control.
So if control is... does not suffice to pierce veils, that's the end of the case, it seems to me.
Mr. Benedon: That's correct.
That is correct and that is our position.
Justice Breyer: I thought there were a bunch of things.
I mean, the Government in its brief lists a whole bunch of things.
He was the sole shareholder.
He was the president.
He did control it.
He paid the taxes in his own Social Security number.
He made various transactions that violated the terms under which it was supposed to be the corporate form, and he didn't train the person properly.
Unknown Speaker: I mean, they have a list of things which I take it they didn't just make up, that they're there in the record.
Justice Breyer: Then... and then they say that, well, in the Ninth Circuit brief, what it says in the footnote is that evidence... evidence will show that Meyer is the sole shareholder of Triad, and thus an argument to pierce the corporate veil would be meritorious.
Well, they don't list all those things in that footnote.
But we should send it back and let the Ninth Circuit decide.
I guess that's basically their argument, and I think I want to hear as complete a response to that as... as you have.
Maybe I've heard it already.
Mr. Benedon: No.
You... I would like to amplify on that, Your Honor.
The issue of... of alter ego that's been now raised for the first time in this... in this Court by the Solicitor General is based on speculation beyond the showing that there was sole ownership and that there is no insurance coverage.
Everything else is unsupported by the record in terms of establishing that there was a failure to adhere to corporate formalities, that there was under-capitalization.
All that is speculation.
And the argument boils down--
Justice Scalia: Was it not even asserted?
Mr. Benedon: --No.
Justice Scalia: --to survive the motion for summary judgment, you don't have to prove it, but you have to say I... you know, I will prove it.
Mr. Benedon: No, it wasn't--
Justice Scalia: It wasn't even asserted.
Mr. Benedon: --It was not even asserted.
It's asserted for the first time in this Court.
Justice Breyer: Well, in the footnote... they mention it in the footnote.
Mr. Benedon: They mention sole ownership in the footnote.
Justice Breyer: Well, that's... that's... you're quite right.
Mr. Benedon: Yes.
And for example, the... Your... Your Honor made reference to payment of taxes.
While that was alleged, it was never proven at the summary judgment stage.
That's just an allegation in their--
Justice Scalia: I don't know what that means.
While it was alleged, it was never proven at the summary judgment stage.
Mr. Benedon: --Right.
Justice Scalia: There... there was no evidence brought in at all to establish it.
Mr. Benedon: --That he... that taxes were paid under his ID?
Justice Souter: Well, was... was there an affidavit on their side claiming that?
Mr. Benedon: On the other side claiming that?
Justice Souter: Yes.
How did it get raised?
Mr. Benedon: It was raised solely as a... as an allegation in the complaint.
And then when it came time for them to put their proof on the table, it wasn't there.
Justice Souter: So at the summary judgment stage, they didn't rely on that is what you're saying.
Mr. Benedon: Correct.
Justice Souter: They didn't.
Unknown Speaker: Okay.
Justice Souter: Correct.
And did you deny it?
Mr. Benedon: Absolutely.
But again, it was not raised as a disputed material fact on the summary judgment, so there's no formal denial in the record because it was never raised.
I'm denying it now.
Justice Ginsburg: And you said there was no genuine issue... no triable issue at the summary judgment stage, that there were no facts?
Mr. Benedon: That there was no issue regarding payment of taxes under Mr. Meyer's personal ID number.
Justice Ginsburg: Well, if the question is the... the liability of Mr. Meyer... and at the summary judgment stage, it's not a trial.
You don't prove your case at that point.
It's only if there's no genuine triable issue.
Mr. Benedon: Right.
The only issue on the summary judgment was whether or not Mr. Meyer was still the owner of Triad Corporation.
The district court found not.
The Ninth Circuit Court of Appeals found that there was a disputed issue on sole ownership.
Justice Stevens: But what was the relevance of whether he was the owner or not?
I don't quite understand.
Mr. Benedon: They're claiming that that was sufficient to establish alter ego, Your Honor.
Justice Stevens: Alter ego, but not piercing the corporate veil, is that--
Mr. Benedon: Well, I'm using those interchangeably.
Justice Stevens: --I'm sorry.
I didn't understand you.
Mr. Benedon: I use those interchangeably.
They... both alter ego as a basis for piercing the corporate veil.
They were arguing... and in fact, the Ninth Circuit held... that sole ownership of the corporation was enough to pierce the corporate veil.
Justice Stevens: They were arguing that.
So they were arguing the pierce-corporate-veil theory then.
Mr. Benedon: No.
They... solely based on sole ownership.
Justice Stevens: But the... but the purpose of investigating the sole ownership issue was to determine whether or not they could pierce the corporate veil.
Is that right?
Mr. Benedon: Based--
Justice Stevens: Which seems to me as though their issue of whether they could pierce the corporate veil was at least raised, and the question is whether their claim of sole ownership was sufficient to establish that point.
Maybe I'm misunderstanding something.
Mr. Benedon: --Right.
Well, that... that's the argument that's made in their footnote on the last page of their brief is that sole ownership would establish an alter ego sufficient to pierce the corporate veil.
And as a matter of law, that's... that is insufficient.
Justice Stevens: But... but now I'm just a little puzzled about the extent to which it was raised in the district court.
Was there a debate on the... in the district court as to whether your client was the sole owner or not?
Mr. Benedon: Yes, there was.
Justice Stevens: And what was the purpose of that debate in the district court?
Wasn't it for the very same reason?
Mr. Benedon: They were trying to... no, I disagree.
I think what they were trying to establish in the district court was the... the control exerted by my client over the corporation as opposed to saying that he should be necessarily a veil-piercing--
Justice Stevens: Well, maybe I... I don't remember the facts correctly.
But I thought that control was really not in dispute.
I thought that the... the person to whom he transferred stock didn't get all the stock, did he, or did he get just some of the stock?
Mr. Benedon: --He got some of the stock, but ownership--
Justice Stevens: So he still would have had control.
Mr. Benedon: --He would have partial control as a... as a shareholder.
Justice Stevens: I see.
Mr. Benedon: But the... the Ninth Circuit held that that was enough.
The court... the Ninth Circuit--
Justice Scalia: Not... not that it was enough for piercing the veil, but that it was enough for what?
Mr. Benedon: --It was enough to impose personal liability.
Justice Scalia: On what basis?
Not on veil-piercing--
Mr. Benedon: No.
Justice Scalia: --basis.
Mr. Benedon: Solely on sole ownership.
They... the Ninth Circuit, taking a... its lead from, I believe, the Seventh Circuit, said basically that in a situation like this where you have sole ownership, under the FHA that's enough to impose--
Justice Scalia: Okay.
You don't have to pierce the veil.
Mr. Benedon: --Correct.
It's... it's an almost per se piercing based on sole ownership.
Justice Kennedy: But just returning one... once again to the broker problem.
I'm looking at Gipson versus Davis Realty, which is a case by Judge... written by Judge Molinari.
It's cited on page 15 of the respondents' brief.
That was a standard respondeat superior case where the broker... pardon me... where the salesman is in an automobile accident and they seek to hold the principal for the damages caused by the accident within the course of his employment.
And this is the case where the statement is made that the broker is liable for the misconduct or... or malfeasance of... of the agent in the course of... of his employment.
And it's a case much like this where there's a corporation that holds the license.
There... there doesn't seem to be a... a distinction between the corporate license and... and the broker license that you made.
Is that... was the law changed since the Gipson case, or--
Mr. Benedon: Not that I'm aware of, Your Honor.
Again, I... I don't have the facts of that case at... at the tip of my fingers.
Justice Kennedy: --Well, it was relied on in the respondents' brief.
Mr. Benedon: Right.
But again, in that case I don't recall if it was a corporate broker or whether it was an individual broker.
But if it was a corporate broker and they're holding them individually liable for the torts of the--
Justice Kennedy: Well, as I understand the facts of the case, it was an individual who held the license and he operated through a corporation.
--Well, again, I would say that what California decides to do is not what needs... can be what determines under the... the Federal statute.
Mr. Benedon: It's been argued by both sides and the case law is consistent that it's Federal rules of agency.
And under Federal rules of agency, the salesperson is the agent of the corporation, not the individual broker.
If there are no further questions, I would just like to conclude and save the rest... the remainder of my time for rebuttal.
Justice Stevens: Very well.
Argument of Robert G. Schwemm
Mr. Schwemm: Justice Stevens, and may it please the Court:
I'd like to begin by addressing the veil-piercing and the preserving issue, particularly with respect to Justice Scalia's question because I disagree with my learned friend on the procedural posture of this case.
There was a 12(b)(6) motion to dismiss.
In the complaint at that time, there were essentially two theories.
The complaint said that Mr. Meyer should be liable as an individual because he owned the corporation, and the complaint also said that Mr. Meyer should be liable because he was the officer/broker.
The district court granted in part, even with respect to the Fair Housing Act claim, the 12(b)(6) motion and, in particular, held that the allegations of the complaint with respect to ownership under no circumstances could lead to liability.
And the only thing that the district court did not grant 12(b)(6) on was the issue with respect to liability based on officer/broker.
That led to discovery.
The district court then granted summary judgment because it was the district court's theory on that issue that there could not be liability unless Mr. Meyer held an individual broker's license as opposed to what he holds in this case, which is a license through Triad, or more properly, according to the California law, Triad holds the license through him.
So with all respect, what the district court held in the 12(b)(6) motion was that no set of facts that the plaintiffs could prove could justify veil-piercing.
We never got--
Justice Scalia: Well, could prove or... or claimed they could prove in response to the motion.
I mean, you... you don't have to sit back and say, I wonder what they might be able to prove.
You... you have to have made an offer of proof, and... and what the court held was that none of the facts that you claimed you could prove would suffice.
Isn't that an accurate description of... of what... what the holding of the court was?
Mr. Schwemm: --And the facts that we alleged were that Mr. Meyer was the sole owner of the corporation, which they denied, and that that was sufficient to impose individual liability.
And when the district court granted 12(b)(6) motion, my understanding of that is that he is saying, under no set of facts will you ever win.
Now, what would--
Justice Breyer: --isn't that true that... that you have to have something more than simply a person being a sole owner of a corporation?
Otherwise a person couldn't create a corporation with himself as a 100 percent owner.
Mr. Schwemm: --Absolutely.
Justice Breyer: All right.
So they're... what they're saying is you didn't allege anything than that, and you certainly didn't support anything other than that with affidavits or other... or other offers of proof.
Mr. Schwemm: That's... that was my point--
Justice Breyer: Yes.
Mr. Schwemm: --with respect to the summary judgment.
Justice Breyer: All right.
Well, if you... if you didn't, then you're out of luck, aren't you?
Mr. Schwemm: I don't think so because--
Justice Breyer: Because?
Mr. Schwemm: --at the 12(b)(6) motion stage, we are told that you can't even--
Justice Breyer: No, no.
I'm not saying 12(b)(6).
I mean on summary judgment.
Mr. Schwemm: --Yes.
If my learned friend was right that this was a summary judgment dismissal of that claim, I might agree.
But that's not right.
We were stopped at the very pleadings stage.
We were prepared to show both of the key factors with respect to veil-piercing, which is that the corporation is heavily underfunded.
In fact, in a colloquy with the district court, the defendant's counsel, after the 12(b)(6) motion, Your Honor, when the only thing left was the summary judgment with respect to the broker situation, the district court said, is there any money in the company?
And the defendant's lawyer said, no, there is not.
Justice Breyer: Okay.
I have your complaint here on page 16 and 17 of the joint appendix.
First claim, Fair Housing Act.
I don't see anything there about... about veil-piercing or anything like that.
Where... where is it in the complaint?
Mr. Schwemm: Correct, Your Honor.
The... the phrase veil-piercing is not mentioned--
Justice Breyer: No, no.
Or anything even vaguely like that.
I mean, what it seems to say is that Mr. Meyer himself did all these things, or through his agent.
Now, that's... that's what it says.
Mr. Schwemm: --The allegation, if I could refer Your Honor to page 4 of the joint appendix in paragraph 6 of the complaint, says that he owned the corporation and on that basis he's individually liable.
And then it goes on and says he also was the officer/broker of the corporation, which is the other theory--
Justice Breyer: Yes, I see where it says he owned the corporation.
What I don't see is something that says, and therefore he is liable because he owned it.
I mean, it just seems to be the part where you're describing the parties.
Mr. Schwemm: --There is another part, Your Honor.
Page 7 of the joint appendix, paragraph 13, which carries over to page 8.
Essentially the same thing.
I'm not suggesting that there is additional material there, but there is the allegation of ownership leading to personal liability.
Justice Breyer: No.
I mean... to be honest with you, I'm not... I'm just debating with myself whether you... we should send this back to the Ninth Circuit, tell them work this out or not.
And district court judges are not mind-readers.
They... they can't make up what you're saying in a complaint unless you say it and unless you argue it.
So... so that's why I'm pressing you on this.
I'm... I'm trying to find the particular point where you really made this point to the district court so the judge would focus on it and make a decision.
Mr. Schwemm: Well, I wish it was more detailed, Your Honor, but it seems to me it's sufficient for notice pleading.
The district court understood it.
The defendants understood it.
Justice Breyer: Well, he didn't seem to, in his opinion, understand it because the only reference he has to veil-piercing seems in a footnote in a paragraph.
And what he seems to be saying there is referring to a different argument, the argument that there could be no veil-piercing because he didn't even own this corporation.
And he says, that... that's really wrong.
It's not true.
Or maybe he said it was right, but he was wrong if he said it was right.
Mr. Schwemm: And that's at the 12(b)(6) stage.
And... and my understanding of that is he is saying, I'm not going to get you... let you go forward to your proof because under no circumstances can there be veil-piercing under the Fair Housing Act, which is just wrong.
Justice Scalia: This was at the summary judgment stage?
Mr. Schwemm: No, sir.
On page 32, which is the district court's order, page 32 to the joint appendix, which is the district court's order--
Justice Scalia: 32 of the joint appendix.
Mr. Schwemm: --Yes, Your Honor.
It actually starts as an opinion on page 25 of the joint appendix.
This is the district court's order granting in part the 12(b)(6) motion.
He doesn't allow going forward at the 12(b)(6) stage the claim based on ownership.
He allows going forward the claim based on corporate broker, and he specifically refers to a case... this is the 12(b)(6) decision... that talks about veil-piercing.
Page 32 of the joint appendix in the footnote.
Now, our point is that that's enough for notice pleading.
The defendants understood what was going on.
The judge understood what was going on.
We were prepared... certainly at the summary judgment stage, Justice Scalia, we would... we would have been happy to go forward with proof of underfunding, and there is substantial proof of underfunding.
We would have been happy to go forward with proof of lack of corporate formalities.
This is a company--
Justice Souter: Well, had you alleged any of these things?
I mean, opposing counsel referred in his argument to an allegation that the individual taxpayer ID number was being used.
Did you allege that in... in the complaint somewhere?
Mr. Schwemm: --That we did allege.
Justice Souter: Okay.
Where is it?
I mean, this is what we're fishing for.
Did you allege anything beyond the mere claim of sole ownership?
Mr. Schwemm: Page 7 of the joint appendix, Your Honor, paragraph 13 toward the bottom of the page.
After it's been alleged that Triad was owned by Mr. Meyer--
Justice Souter: Yes.
I got it.
Mr. Schwemm: --Got it?
Justice Souter: Yes.
Did you allege anything... I mean, okay, we've got sole ownership.
We've got taxpayer ID.
Did you allege anything else that might be a basis for piercing the veil?
Mr. Schwemm: We... we did not allege the details of that.
That is to say, we did not allege underfunding, and we did not allege lack of corporate formalities.
But it seems to me that's not required under Conley versus Gibson.
There is notice pleading, and then we are put to our proof if that had been permitted to go forward to the summary judgment stage.
Justice Ginsburg: You're... the point you're making is that you are not certainly required under the Federal rules to set out your... any theory of the pleadings.
You just have to state facts showing that there's a claim for relief.
Mr. Schwemm: That's exactly right, Your Honor.
And it seems to me in a case decided by this Court in the mid-'90s... I believe it was Peacock... the Court said veil-piercing is really not a new claim.
It is a theory of relief.
We have claimed Fair Housing Act liability in the complaint based on these--
Justice Stevens: Mr. Schwemm, can I ask you this question?
We really didn't grant certiorari to decide--
Mr. Schwemm: --Yes.
Justice Stevens: --a California question as esoteric as this one is.
And I'm just wondering, do you defend the rationale of the Ninth Circuit and do you defend the... do you abandon reliance on any Federal defense here?
Mr. Schwemm: Our position--
Justice Stevens: Or Federal regulation.
Mr. Schwemm: --is that the Ninth Circuit's judgment was correct, but it went too far when it reached out and said under the Fair Housing Act we have to go beyond traditional principles of agency.
We think the standard should be, just as it is under Title VII, the employment discrimination law, in Kolstad, Burlington Industries, and Faragher, that the standard for vicarious liability under the Federal statute should be a Federal standard.
And that standard should be traditional agency principles as informed by the policies of the Fair Housing Act.
Now, the Ninth Circuit apparently felt that they had to go beyond traditional agency principles.
What we've tried to do in the brief in Roman numerals I, II, and III is point out three separate and independent alternative theories under traditional agency principles.
And in that sense, we... we think the Ninth Circuit just reached out and tried to do something that wasn't necessary.
Justice Stevens: Well, then is your piercing-of-corporate-veil theory a Federal theory or a State law theory?
Mr. Schwemm: Our position on that is that it's probably Federal law, but as I read Bestfoods, the Court hasn't specifically determined, and if I may say that this... this is something that I don't have a position on.
But either way, we are entitled to a remand whether it's Federal or California law.
But the cause of action clearly is the Fair Housing Act.
I believe the Government takes the position... and we certainly don't disagree with the Government... that it is a Federal question.
And if I may, I want to get into those parts I, II, and III of our brief, and particularly the first part and vicarious liability.
The problem we have with petitioner's argument is that I believe it's based on two faulty assumptions.
One is that petitioner wants to take certain parts of the California corporation and real estate law that are advantageous to him, but he doesn't want to take the other part, which is the responsibility part.
It is literally true that in California, a corporation can be a broker, but it cannot be a broker unless there is an individual appointed who is an officer of the corporation and has qualified under the broker requirements, and that individual is required by California law to take responsibility for the supervision and control of the agency.
Justice Stevens: Yes, but your opponent says that the... the results under California law is he can be disciplined if he fails to do so, but there are no California cases holding him personally liable if he fails to do so.
Mr. Schwemm: Our position is that that may be right, it may be wrong.
We believe this is a Federal standard.
Justice Stevens: Do you think it's right or wrong?
Mr. Schwemm: If we got a remand, Your Honor, we would very much like the opportunity on this basis to argue that it's wrong.
There is a California case in 1978 that holds that, but a year later, California amends its licensing statute to add the very key provision in this case which is 10159.2 which says that the individual who's appointed by the corporation as the officer/broker has personal responsibility.
So our argument would be on remand that that change.
But I want to... I want to make the point that--
Justice Scalia: Well, can... can I go back to an earlier point you made.
You said that California law says that the corporate broker, the... the one who's designated for the corporation, has to exercise control over the... over the brokers in the corporation.
That may well be true.
The... the issue is not whether he... he has to exercise control.
It's whether he exercises control in his personal status or rather exercises control as an officer of the corporation.
If it's in the latter capacity that he exercises control, he... he should not have personal liability.
It's the corporation that has liability.
Mr. Schwemm: --Well--
Justice Scalia: Now, as I understand the California law, this broker could not operate under that license on his own.
The only way he could use that license was as an officer of the corporation.
Isn't that correct?
Mr. Schwemm: --I would put it actually a little differently.
If you divide the corporation from Mr. Meyer, Mr. Meyer can then apply, because he's qualified, to become a broker.
Currently he would have to file a paper, but he would clearly get the status.
But Triad, Inc. would cease at that moment being able to be a broker.
And none of the acts in this case, none of the salesman's acts, could have been performed under the rubric of Triad.
And the other point that I was going to make about the petitioner's argument that I think is faulty is it's the assumption that if Triad, Inc. is the principal of these agents, nobody else can be the principal of these agents.
And that's clearly inconsistent with longstanding agency principles as reflected in the Restatement, section 20, comment f, which says there can be joint principals.
Justice Scalia: Well, yes, but... sure, of course, there can.
But... but it's... it's corporation law that... that the officers of the corporation are not one of those other principals.
Mr. Schwemm: Ordinarily, Your Honor, but not in this case.
I... I repeat.
This company cannot be a broker if it doesn't have a broker-qualified individual who takes responsibility for the agents.
Justice Kennedy: Do you think the Gipson case that you cited in your brief is on all fours with your case?
Mr. Schwemm: --No, Your Honor, it's not on all fours.
I believe what it says is if the broker is operating as a sole proprietorship, as an individual, he clearly is vicariously liable.
That is, by the way, what 86 percent of the brokers in California do.
They operate as sole proprietors, and they are clearly vicariously liable.
There is a... an additional question.
What happens when you incorporate?
And... and so it's not exactly on all fours.
And I think the... the jury is out or the judges are out with... with respect to what California would do.
Some States say in addition to the corporation, the individual is vicariously liable; some don't.
Justice Scalia: Well, so that means you can't have a corporation.
If... if you want to run a real estate corporation, you can't do it because there has to be a broker's license, and you're going to be personally liable.
What's the use of having a corporation then?
Mr. Schwemm: There are many uses, Your Honor, and I would like to address that.
The only thing that we are arguing that Mr. Meyer was responsible for is what I would call the licensed activities.
For example, if a broker went out on the way to a meeting and negligently drove his car and caused an accident, that is not the kind of behavior that's subject to broker supervision.
And that would be no liability.
Justice Scalia: Well, but if he defrauds a client or, I mean, anything that's going to involve big money on the part of the corporation is going to come back on the head of the individual broker.
So you're saying if you want to be in the brokerage business, you cannot do it as a practical matter in the corporate form.
Mr. Schwemm: Only I'm not saying it, Your Honor.
Justice Scalia: That's... well, no.
That... that's what you say the California law says.
Mr. Schwemm: Yes.
And every State... I want to make this point.
Every single State says this.
11 States say you can't even operate as a broker as a corporate form.
39 States, including California, said we will allow you to do this, but there has to be one human being that is responsible.
And in this particular case, there came a point when Mr. Meyer was trying to get the Triad license extended.
California said you haven't satisfied that because you personally, Meyer, haven't engaged in the continuing education requirements that an officer/broker is required--
Justice Scalia: That's even tougher than... than what most States provide for lawyers.
Mr. Schwemm: --It's very analogous to lawyers, Your Honor.
Justice Scalia: No.
It isn't analogous at all.
Lawyers... lawyers can... can avoid personal liability.
California doesn't give personal liability there, does it?
I mean, my statute here says there's an officer who's designated by a corporate broker license, and that officer is responsible for supervision and control of activities conducted on behalf of the corporation.
So that suggests that he's conducting that supervision on behalf of the corporation, and so it's the corporation that would respond in... in... under the principle of respondeat superior.
Mr. Schwemm: Let me--
Justice Breyer: Evidently that's what California has held, and given the wording, it seems reasonable.
Mr. Schwemm: --Well, it held that and then California's legislature came along and added... added the requirements.
But let me... let me make this observation: When Mr. Crank, the salesperson in this case, wanted to extend his salesperson's license, he was required to have his broker authorize the forms.
This was done four times by Mr. Meyer.
If you look at the form... joint appendix lodging 75 is the most recent example, but there are three other examples... the California form says, list the company.
And then requires the officer/broker, Meyer in this case, to sign a certification which specifically says, I certify this salesperson is employed by me.
Justice Scalia: I only have 74 pages in my joint appendix.
You said it was joint--
Mr. Schwemm: I'm sorry.
I... I misspoke.
Joint appendix lodging, Your Honor.
Justice Scalia: --Oh.
Mr. Schwemm: It's the large tan one.
Justice Scalia: Got you.
Mr. Schwemm: And this was done, by the way, for Mr. Crank on four different occasions.
What I'm trying to... to say is this is a classic case of joint principal.
There aren't... that isn't true, Justice Scalia, in... in every corporate situation.
Of course, not.
We don't argue that.
We argue that this is a responsible human being and that that makes him liable--
Unknown Speaker: On the major question that we took the case to decide, what... what's--
Justice Breyer: the general rule... well, we can ask the Government... what the general rule for when we look to State law and when we look to Federal law.
Certainly State law informs what the Federal law ought to be.
That's... that's Faragher and Burlington.
Mr. Schwemm: --That would be my response as well.
We have a... a Federal standard informed by State law.
Justice Stevens: Thank you, Mr. Schwemm.
Mr. Schwemm: Thank you.
Justice Stevens: Mr. Stewart.
Argument of Malcolm L. Stewart
Mr. Stewart: Thank you, Justice Stevens, and may it please the Court:
As this case has been briefed in this Court, it's common ground among the parties and the United States that questions of vicarious liability under the Fair Housing Act are to be decided on the basis of generally applicable principles of agency and corporate law rather than by reference to a rule that's distinct to the FHA.
And obviously, it is a... an important general principle of corporate law.
Unknown Speaker: Well, do we look to general Federal common law agency principles, or are we bound by State agency law, Mr. Stewart?
Mr. Stewart: I think the Court... I'm sorry.
I think the task for the Court would to... be to devise a uniform nationwide rule.
That's what the Court said--
But certainly the Court will look as... as in Faragher and in Ellerth, the Court looked to the Restatement of Agency which for the most part is a compilation of decisions rendered by State courts.
So it's... it's looking to the law of the States generally, but it's not looking to the law of a particular State.
So with respect to our veil-piercing argument, we would say that the Court should devise a uniform Federal--
Justice O'Connor: Well, do you think it's fair to read the complaint that was filed as putting anyone on notice that it was a veil-piercing case?
Mr. Stewart: --We think that the claim was adequately raised in the district court.
Justice O'Connor: Where?
Mr. Stewart: The--
Justice O'Connor: Could you read it to us?
Mr. Stewart: --The... the plaintiffs--
Unknown Speaker: Because it's not clear to me.
Mr. Stewart: --The plaintiffs--
Justice O'Connor: I don't think if I read that complaint, I would read it as one that was proceeding on a veil-piercing theory.
Mr. Stewart: --Well, the--
Justice O'Connor: I would have thought it was proceeding on the designated broker theory.
Mr. Stewart: --Well, the plaintiffs... the plaintiffs didn't use the phrase, veil-piercing, but on page of the joint appendix, for instance, they alleged that Mr. Meyer is the designated officer/broker of Triad, the president of Triad.
They also alleged that Mr. Meyer... they alleged that Mr. Meyer was the sole shareholder of Triad.
In addition, as Mr. Schwemm pointed out--
Justice Kennedy: But that would be consistent with a corporation that's wholly adequately funded and... and whose... which... whose veil cannot be pierced.
Mr. Stewart: --And it's true that they... they didn't allege in the complaint inadequate capitalization.
However, as Mr. Schwemm pointed out, there was a colloquy in the district court in which the petitioner's counsel appeared to acknowledge that the corporation was without assets.
Justice Breyer: But it isn't... I mean, look.
The judge is sitting there on a motion to dismiss the complaint, and he reads the complaint.
And when he reads the complaint, he looks to claims, and he sees first claim, Fair Housing Act, which doesn't have a word about this theory.
And apparently in the brief, a different theory was produced, the one that's been produced today, that the reason they're liable is not because we want to pierce the veil, but because it's Mr. Meyer who's really the holder of the license in some sense, and that is sufficient.
So not surprisingly, the district court says that.
He says any liability against Meyer as an officer of Triad would attach only to Triad in that plaintiffs have not urged theories that could justify reaching Meyer individually, with one exception.
And he then goes and discusses the exception.
Well, if I were a district judge, I would have thought I had done my job at that point unless somebody came in and petitioned for rehearing and said, judge, you missed something, which no one did.
Mr. Stewart: --I think you're right that the primary theory that the respondents advocated in the district court was based on Mr. Meyer's--
Justice Breyer: No.
Let's try sole theory.
Mr. Stewart: --Well, this... this was raised and disputed in the Ninth Circuit; that is--
Justice Breyer: In the footnote.
Mr. Stewart: --Not just in the footnote.
In the Ninth Circuit at page 7 and 8 of the petition appendix, the Ninth Circuit having turned to the possible liability of Mr. Meyer as the shareholder of Triad.
And the Ninth Circuit said petitioner Meyer disputes that he was sued in that capacity.
However, the Ninth Circuit goes on to hold, we disagree.
We think that claim was adequately raised in the district court.
Justice Breyer: Of... of course, what was raised is we get Meyer because Meyer holds the license, and even though it's held in the name of the corporation, that really doesn't matter.
Mr. Stewart: No.
But the Ninth Circuit clearly understood the claim against Meyer as shareholder to be distinct from or at least in addition to the claim against Meyer as designated officer/broker.
That is, what... what seems to us to make this a paradigmatic case for veil-piercing, taking the facts--
Justice Breyer: Well, maybe it is.
Mr. Stewart: --in the light most favorable to the respondent, is the combination of functions that Mr. Meyer played.
Now, it's true that the respondent by and large and the Ninth Circuit appeared to regard these distinct functions as separate and independent bases for liability.
But in our view, it's only a short step to say even if no one of the roles that Mr. Meyer played would be an independently sufficient ground for imposing personal liability, the combination of functions, together with the inadequate... apparent inadequate capitalization--
Justice Scalia: Mr. Stewart, as... as I understand the theory of why the failure to bring forward affidavits or some... some evidentiary proof of these matters at the summary judgment stage was not necessary, as I understand it, the plaintiffs' theory is it wasn't necessary because the piercing-the-veil portion of the complaint never made it to the summary judgment stage.
It had been dismissed on the face of the complaint.
Is that correct?
Mr. Stewart: --That is correct.
Justice Scalia: Now, was there an appeal of that dismissal on the face of the complaint?
Mr. Stewart: The... the ultimate... there was not a separate appeal, but the ultimate appeal that went to the Ninth Circuit was an appeal both from the dismissal of certain portions of the complaint and from the grant of summary judgment with respect to--
Justice Scalia: What portion?
Was... it was an appeal of the... of the portion of the complaint that dismissed... dismissed a... a veil-piercing--
Mr. Stewart: --It was not specific.
The... the appeal from the dismissal was with regard to Mr. Meyer's potential liability as shareholder and the appeal from the grant of summary judgment with regard to his potential liability as designated officer/broker was based on the grant of summary judgment.
Justice Scalia: --Well, so in addition to the complaint being very vague, the... the appeal of the dismissal was pretty vague too.
I... I don't understand what... I mean, if you were objecting to the dismissal of the... of... of a veil-piercing theory, you... you should have, it seems to me, come forward and say, I object to dismissal of that theory.
Mr. Stewart: I would acknowledge that the theory that... that we and the respondents have... the veil-piercing theory that we have advanced in this Court is a refinement of what was said in the Ninth Circuit.
But it's... it's always been part of the case that Mr. Meyer's liability was alleged on the basis of his status as shareholder, his status as designated officer/broker, his status as president.
And again, the claim in the Ninth Circuit tended... tended to be more that these were independent bases for liability.
And our view is that no one of them would be sufficient in and of itself.
Taken together, they establish that Mr. Meyer exercised pervasive control over--
Justice Ginsburg: Mr. Stewart, I'm... I'm confused about one procedural point.
Was there not a final judgment in the district court--
Mr. Stewart: --There... there--
Justice Ginsburg: --at the end of the rope, one final judgment that says that defendant wins and then you... from that final judgment you can take up all the rulings against the verdict... the... the judgment loser?
Mr. Stewart: --That... that's correct.
The district judge first threw out on 12(b)(6) everything except the claim against Mr. Meyer as designated officer/broker, and subsequently entered summary judgment for the petitioner on that claim.
And then there was a final judgment and that was taken up to the Ninth Circuit.
Unknown Speaker: And the final judgment would include all the rulings on the way to that final judgment disposing of the entire case.
Mr. Stewart: That... that's correct.
Now, in the course of doing discovery on the designated officer/broker question, they... the plaintiffs unearthed some facts that are potentially relevant to the veil-piercing theory, but they've had no discovery on veil-piercing as such.
And another important criterion in determining whether veil-piercing is appropriate is whether the individual bears some degree of personal fault for the wrong alleged.
And here, the plaintiffs' allegation is that Mr. Meyer negligently supervised Mr. Crank, that that was a contributing factor in Crank's ultimate misconduct, and that would suffice to show that aspect of the veil-piercing analysis.
I think it's also important to note that courts are typically more willing to pierce the veil in tort cases than in contract cases; that this Court has described the Fair Housing Act as... as essentially defining a new type of tort.
The theory is that in contract cases, an individual who contracts with a corporation has his own opportunity to assess the... the corporation's finances and decline to do business if the corporation seems likely not to be able to satisfy its obligations whereas in a tort case the... the potential plaintiff has no opportunity to do that.
Inadequate capitalization has always been an important factor in veil-piercing analysis, and really it goes to the question whether the incorporators have adequately respected the independent status of the corporate entity.
Justice Kennedy: You don't... you don't rely in your submission on the proposition that under California law, the broker is liable.
Mr. Stewart: We... we don't.
Justice Kennedy: And is that because you accept the distinction between a corporate broker... a broker's license which is in the corporation?
Mr. Stewart: --I think it's partly that.
I think it's partly just the general background rule is individual supervisors are ordinarily not vicariously liable for torts committed by the people they supervise.
Justice Kennedy: Suppose in a majority of the States, the broker is liable for the... I forget the... intervening corporate... suppose in a majority of the States, the broker is liable for the acts of the salesperson.
Mr. Stewart: May I answer?
Justice Kennedy: Yes.
Mr. Stewart: If a consensus developed among the States that designated officers/brokers were sufficiently different from ordinary supervisors that they should be held vicariously liable, then we would advocate that as the general Federal rule.
But the respondent has not established that there is such a consensus.
Justice Stevens: Thank you, Mr. Stewart.
Unknown Speaker: Mr. Benedon, you have 7 minutes left.
Rebuttal of Douglas G. Benedon
Mr. Benedon: Your Honors, I would submit at this point unless there are any further questions.
Justice Stevens: Thank you.
Justice Scalia: I--
Justice Stevens: --Oh, excuse me.
Justice Scalia: I do have... I'm still... what is... what is your response to the... to the assertion that it was not necessary for the plaintiffs to bring forward any affidavits or evidence at the summary judgment stage because on the... on the veil-piercing issue... because that issue was no longer alive at the... at the summary judgment stage.
It had been dismissed on the complaint.
Mr. Benedon: I would start from the premise that the veil-piercing theory was never born, not that it wasn't alive.
Justice Scalia: In other words, you... you concede that then and... and you... you fall back on... on the simple fact that the veil-piercing theory was never... was never really contained in the complaint.
Mr. Benedon: Never contained in the complaint, never raised--
Justice Breyer: But it is actually.
I mean, it says that... that the... the defendant violated the Fair Housing Act when his agent discriminated.
Unknown Speaker: That's what it says in paragraph 41.
Justice Breyer: And then previously in paragraph 13, it lists a whole lot of facts about the relationship of Mr. Meyer to the company including the fact about the tax numbers and so forth.
And so what they say is, you know, the complaint doesn't have to spell out every theory, but it does state some facts there from which this basis could be fairly inferred, and therefore it shouldn't have been dismissed.
Rather, they should have had at least an opportunity to argue it.
I... I take it something like that is their claim.
Mr. Benedon: --But again, we have to look at what are the allegations in the complaint.
Justice Breyer: Well, the allegations are just what I had said, paragraph--
Mr. Benedon: There--
Justice Breyer: --Yes.
Mr. Benedon: --There are allegations of sole ownership, corporate... that he was the sole owner, that he was the officer/broker, and that he was the president, and that the taxes were paid under his ID number, an allegation that's never been proven.
I think most telling to what was the issue in this case is the holding of the Ninth Circuit itself, and that's at page 67 of the joint appendix where the court of appeals states where common ownership and management exists, corporate formalities must not be rigidly adhered to, a holding which is clearly erroneous, but which sets out what was the issue in this case.
The issue was not under-capitalization.
The issue was not mismanagement of corporate formalities.
The issue is... was could Mr. Meyer as an individual be held liable because he was the sole owner, president, and designated broker of Triad... Triad Realty.
And for that reason, the Ninth Circuit should be reversed and the judgment of the district court in favor of Mr. Meyer reinstated in full.
Justice Stevens: Thank you, Mr. Benedon.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 01-1120, Meyer against Holley will be announced by Justice Breyer.
Argument of Justice Breyer
Mr. Breyer: The Fair Housing Act forbids racial discrimination in respect to the sale of a dwelling.
This case involves discrimination that was allegedly engaged in by a corporation’s employee.
He was a real estate salesman in the real estate company with a corporation, and we are considering a victim here of that discrimination, it is an interracial couple.
In this particular aspect of the case that we are considering, they have sued not the employee nor have they sued the corporation, his employer, but rather they have sued an officer of the corporation and its sole shareholder.
Now the issue raised concerns vicarious liability.
That is the kind of liability that traditionally makes an employer liable without fault for the acts of an employee or it might make a principle liable without fault for the acts of an agent.
In particular question we have to consider is whether in deciding who is liable for what ordinary rules of vicarious liability apply and those ordinary rules would normally make the corporation vicariously liable for the acts of the corporation’s employees and they would not make an owner or a corporate officer vicariously liable except in quite special circumstance.
Now the Ninth Circuit held that ordinary rules do not apply.
Rather the Ninth Circuit said special rules apply, and those special rules in the Circuit’s view make every officer of a corporation and shareholders, personally liable without fault for the misbehavior of any corporate employee as long as the officer or the shareholder “directs or controls” or has the right to direct or control that misbehaving employee.
Now that special principle goes well beyond any ordinary vicarious liability principle and in our view, ordinary rules of vicarious liability apply not the Ninth Circuit special ones.
For one thing, Congress said nothing in the Act about extending vicarious liability in any special way. In fact, it said nothing in the Act about vicarious liability at all, and this court’s case law including cases involving Civil Right Statute makes clear that that kind of silence while permitting an inference that Congress intended to apply ordinary background tort principles cannot show that Congress intended to apply an unusual modification of those rules.
Rather the Court has found that a statute applies unusually strict rules only when Congress has specified that that was its intent.
Or another thing, the Department of Housing and Urban Development, the agency primarily charged with the Acts implementation and administration has long specified that ordinary vicarious liability rules apply in this area, and the court normally refers to administrative agencies reasonable interpretation of the statute.
We have also examined the arguments of the Ninth Circuit advanced in favor of its interpretation, and for reasons set out in the opinion, we find them unconvincing.
Consequently we hold that that Act imposes liability without fault in accordance with traditional agency principle.
The respondents in this case make other claims, including the claim that even under traditional principles, there are exceptions that would make those traditional of principles apply here.
We do not decide these matters.
We say however that the Ninth Circuit remains free to consider them on remand if they were properly raised.
Consequently, the judgment of the Ninth Circuit is vacated and the case is remanded.
Our decision is unanimous.