Legal Update 2008: What's Happening in the Courts

In this special issue of Fair Housing Coach, we'll update you on some recent court developments on the Fair Housing Act (FHA). In recent months, courts have handed down decisions on local immigration measures and the FHA design and construction standards—topics we covered in Fair Housing Coach earlier this year—and on discriminatory advertising on the Internet, a topic we last covered in 2006.

In this lesson, we'll explain the rulings and the reasoning behind the courts' decisions. And in each Editor's Note, we'll highlight how the decision can help bolster your fair housing efforts. Finally, you can take the Coach's Quiz to see how much you have learned.

IMMIGRATION

There have been some developments on immigration regulation affecting the rental property industry since we last covered the topic in our January 2008 issue, “What You Can and Can't Do When Checking Tenants' Immigration Status.” As we reported then, a number of local governments have adopted immigration-related ordinances, but implementation of those measures has been halted by litigation.

Court Strikes Down Texas Immigration-Status Ordinance

Last year the City of Farmers Branch, Texas, adopted an ordinance requiring owners and property managers to verify applicants' immigration status before entering into a lease or rental arrangement.

Individuals representing community owners and residents had sued the city, arguing that the ordinance was unconstitutional because it conflicted with federal immigration law and violated owners' and residents' due process—that is, the right to proper legal proceedings. In our January issue, we reported that the federal court in Texas last year temporarily halted enforcement of the ordinance, pending further court review.

In a ruling issued in May 2008, the court permanently banned implementation of the ordinance and ruled for the owners and residents on two claims. (At press time, claims brought by the residents under the FHA were still pending.)

At the outset, the court acknowledged that the ordinance had been the subject of much scrutiny by the media and the public, and that citizens of Farmers Branch and beyond had communicated their support of the ordinance. But, the court said, “This is not the first time—nor will it be the last—that a court has held a politically popular ordinance to be unconstitutional.”

The ordinance permitted residency only by those with “eligible immigration status” as defined in HUD regulations. Those regulations impose restrictions on federal housing subsidies to noncitizens, some of whom were lawfully in the country under federal immigration law. In effect, the court said, the city used federal regulations regarding housing benefits to define which noncitizens may rent a unit in Farmers Branch. The ordinance was a “regulation of immigration” that conflicted with federal law, so it was unconstitutional.

The ordinance required owners to collect documents proving applicants' immigration status before entering into a lease, and placed the burden of verifying immigration status on owners and property managers, based on a scheme that did not adopt federal immigration standards.

Finally, the ordinance violated owners' constitutional rights to a fair hearing, because it didn't provide sufficient guidance to owners who were responsible for enforcing it and who were subject to criminal penalties for failure to comply. The ordinance, directed toward owners with no training or expertise in federal immigration law, was too vague to give those owners enough notice of what acts could be considered a criminal offense [Villas at Parkside Partners d/b/a Villas Parkside v. City of Farmers Branch, May 2008].

EDITOR'S NOTE: In January 2008, the City of Farmers Branch passed a new ordinance on the citizenship or immigration status of tenants in that city. Attorneys for the city asked the court to issue an advisory opinion on the validity of the new ordinance, but the court declined. At press time, the ordinance was not in effect, according to the city's Web site.

Kentucky Owner on Trial for Harboring Illegal Immigrants

In perhaps the first case of its kind, the owner of a Kentucky community was on trial this summer on federal criminal charges for renting to illegal immigrants.

William Jerry Hadden, the co-owner and operator of two apartment complexes, faced federal charges that he harbored, encouraged, and induced illegal aliens to reside in the United States. He also was charged with money laundering of the rental proceeds.

The indictment charged the Haddens and their company of conspiring to conceal, harbor, and shield from detection, aliens in the apartment complexes between the years 2000 and 2007 to gain a commercial and financial advantage, according to the U.S. Attorney's Office for the Eastern District of Kentucky.

Specifically, the owners were accused of authorizing the rental of apartments to 60 tenants who had no form of U.S. identification or Social Security numbers as requested on the application. They also were accused of encouraging and inducing aliens to reside in the United States, knowing that the aliens were not lawfully present.

Hadden pleaded not guilty on behalf of himself and his business to all charges in the 32-count indictment, which could have required Hadden to serve a maximum prison sentence of 20 years and the possible loss of the two apartment complexes. In early July, the jury found Hadden not guilty on all charges, according to the American Immigration Lawyers Association.

EDITOR'S NOTE: Immigration is a hot-button issue across the country and is likely to remain so for some time to come. Generally speaking, you wouldn't run afoul of the FHA if you were to screen applicants based on their citizenship or immigration status, as long as you did so for all applicants. In the wake of continuing controversy over state and local immigration-related measures, your community should consult an attorney to review its policies regarding tenant screening policies and procedures.

DESIGN and CONSTRUCTION REQUIREMENTS

In our March 2008 issue, we described how to comply with the FHA's design and construction requirements, which generally apply to multifamily communities open for first occupancy after March 13, 1991. If a community subject to those requirements fails to comply, the owners, developers, and others responsible for its design and construction face potential liability for damages, fines, and penalties.

Generally, the law imposes time limits for filing lawsuits, to keep the courts from being flooded with claims based on events long since passed. The time limit for filing FHA claims varies, depending on who files the case, but it's usually two years for lawsuits filed by private parties, such as applicants, residents, or fair housing groups.

In most cases involving housing discrimination, it's easy to determine when the two-year time clock starts running—for example, the date when the owner rejects an application for discriminatory reasons. In cases involving the design and construction of buildings completed years ago, however, courts have come to differing conclusions about the start of a time limit—when construction is completed, when the defect is discovered, or at some other time. Though a technical legal issue, it's generally critical to know when—or if—an owner or developer's potential liability for design and construction defects ever ends.

Design Liability Starts When Construction Ends

As we reported in March, a federal appeals court last fall ruled that the time clock begins to run upon completion of the design and construction phase. A three-judge panel threw out lawsuits involving multifamily communities in Idaho and Nevada built more than two years before the lawsuits were filed.

Since then, the court withdrew that decision and conducted hearings. In May 2008, the full appeals court filed a new opinion. The court ruled that the statute of limitations barred the lawsuits because the triggering event had occurred long before the lawsuits were filed. The alleged discriminatory practice was a failure to design and construct the communities in accordance with FHA standards. That meant that the statute of limitations was triggered at the conclusion of the design and construction phase, which occurred on the date the last certificate of occupancy was issued.

The court rejected other possible dates—some of which have been adopted by other courts—that would have extended an owner's potential liability. These included arguments that the time clock didn't begin to run until a resident with a disability discovered an alleged defect, which could be more than two years after the design and construction phase was completed.

The court also rejected seemingly endless potential liability if design or construction flaws were considered a continuing violation of the FHA, so that the time clock would not start to run until the building defects were corrected.

The continuing violation theory is reflected in HUD's Fair Housing Act Design Manual: “With respect to the design and construction requirements, complaints could be filed any time that the building continues to be in noncompliance, because the discriminatory housing practice—failure to design and construct the building in compliance—does not terminate.”

That theory, according to the court, confused a continuing violation with the continuing effects of a past violation. Failure to design and construct was a single instance of unlawful conduct, which in these cases occurred long before the lawsuits were filed [Garcia v. Brockway, May 2008].

Supreme Court Won't Hear Appeal

As we reported, another federal appeals court came to a different conclusion, ruling that the triggering date for the time limit for filing FHA design and construction cases depends on the circumstances of the case.

Since then, the U.S. Supreme Court has declined to consider an appeal of the case, which involved three multifamily housing developments in Kentucky. The lawsuit against the developer was triggered when fair housing testers discovered the alleged defects. It was filed more than two years after construction of the first development, but within two years of construction of the other two developments.

The court rejected the builder's argument that the triggering event was the completion of the design and construction phase. The court reasoned that the wording of the FHA focused on housing discrimination in the sale or rental of housing units, not the mere design and construction of a noncompliant housing unit. The court also rejected the theory that the noncompliant structures amounted to a continuing violation, such that the time clock wouldn't begin to run until the alleged defects were corrected.

Instead, the court said that the triggering event depended on the circumstances involved. For example, when an individual with a disability wanted to rent a particular unit and discovered it was inaccessible because of a design defect, the limitations period for that person's claim would begin to run from the date he tried to rent the unit and discovered the nonconforming conditions.

In this case, however, where the developer was accused of engaging in a policy or practice throughout the entire development of constructing housing units that failed to comply with the FHA, the court ruled that the statute of limitations did not begin to run until the sale of the last unit in that development.

And where the owner of several developments was accused of engaging in continuous policy or practice of noncompliant design and construction, the statute of limitations would not begin to run until the last unit of all the developments was sold [Fair Housing Council v. Village of Olde St. Andrew, December 2006; Appeal Denied January 2008].

Court Adopts Different Dates for Owners, Architects

In May 2008, the federal court in Maryland adopted different deadlines for design and construction flaws under the FHA, depending on who is being sued. Though the case involved university housing, the court's ruling on the FHA claims would apply equally to owners and others involved in the design and construction of private housing communities.

The case was filed by a student more than two years after construction was completed. The student sued the university, the architect, the developer, and others for alleged design and construction defects under the FHA. He also filed claims under the Americans with Disabilities Act and the Rehabilitation Act.

In an earlier ruling, the court threw out FHA claims against the building's architects, ruling that the time clock began running as soon as construction was completed and the building was first occupied in 2000.

Nevertheless, the court recently refused to dismiss claims against the university, the developer, and others for the alleged design and construction flaws. The court rejected the university's argument that the time clock on any design and construction defects began running as soon as the building's construction was completed.

The court ruled that the two-year time clock began to run on the date when an owner or developer either ceased to have control over accessibility or brought the housing into compliance. The court reasoned that this standard would establish an owner's and manager's ongoing duty to make corrections to bring the building into compliance with the FHA, while limiting the liability of, for example, architects, whose involvement and control over the accessibility of a building ended once the building was complete.

The court said the building's owners and managers continued to be involved in the leasing of alleged noncompliant housing. The remaining parties had an ongoing duty in light of their control over the building, so the time clock with respect to the design and construction claims began when the student leased the unit in 2005 [Kuchmas v. Towson University, May 2008].

EDITOR'S NOTE: Courts have disagreed about when time runs out for filing lawsuits for failure to comply with the FHA's design and construction standards. Courts have been more inclined to find that it ends at the completion in construction in lawsuits filed against an architect or builder, whose involvement in the community ends at that time. However, courts have been more likely to extend the time limit—sometimes indefinitely—for owners or developers, who have an ongoing relationship with the community.

ADVERTISING

In the February 2006 issue of Fair Housing Coach, “How to Avoid Violating Fair Housing Law When Marketing Your Community Online,” we explained that the FHA bans discriminatory advertising by making it illegal “to make, print, or publish … any notice or statement” that expresses a “preference, limitation, or discrimination” based on race, color, religion, national origin, familial status, sex, or disability.

The ban on discriminatory advertising applies not only to traditional forms of media, such as newspapers, magazines, television, and radio, but also to the Internet, according to HUD. In a 2006 memorandum, HUD addressed claims of online providers that asserted immunity from liability for discriminatory advertising under the federal Communications Decency Act (CDA).

That law limits the liability of an “interactive computer service” for content originating with a third party of the service. HUD said that the CDA does not protect Web sites from liability for housing discrimination under the FHA or other civil rights violations.

A pair of cases decided this spring shed new light on this issue.

Craigslist Not Liable for Ads

In March 2008, an online service, craigslist.com, fought off claims that it violated the FHA by posting discriminatory ads for rental housing. Craigslist is an online service that offers classifieds and forums for 450 cities; more than 30 million notices on a wide range of topics are posted each month. Fewer than 30 people, all based in California, operate the system.

A civil rights group sued Craigslist, claiming that the Web site violated the FHA by posting ads for housing for sale or rental with statements such as “NO MINORITIES” and “No children.”

The court ruled that the CDA protected Craigslist from liability under the FHA for the discriminatory ads posted by third parties. Under the CDA, “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

What that means, according to the court, is that Craigslist could not be liable under the FHA as the publisher of the discriminatory ads. Nor could it be liable as the one that “cause[d] to be made, printed, or published” the discriminatory ads. The court said that nothing in the service Craigslist offers induced anyone to post any particular listing or expressed a preference for discrimination.

The court suggested that the civil rights groups could dispatch testers and collect damages from communities that engaged in discrimination or assemble a list to send to the attorney general for prosecution. But given the CDA, the court said, “it cannot sue the messenger just because the message reveals a third party's plan to engage in unlawful discrimination” [Chicago Lawyers' Committee for Civil Rights Under the Law, Inc. v. Craigslist, Inc., March 2008].

Online Roommate-Matching Service May Be Liable for Discriminatory Content

In April 2008, a federal appeals court handed down a mixed decision in a housing discrimination case against an online roommate matching service.

The service, Roommate.com, operated a Web site designed to match people renting out spare rooms to people looking for a place to live, according to the allegations. Allegedly, the Web site, which offered both free and fee-based levels of service, featured approximately 150,000 active listings and received about a million page views a day.

Before subscribers could search listings or post housing opportunities on the Web site, according to the lawsuit, they had to create profiles, a process that required them to answer a series of questions. Allegedly, the service required them to disclose their gender, sexual orientation, and whether they would bring children into the household. It also required them to state preferences in roommates based on the same criteria.

In addition, the site allegedly encouraged subscribers to provide “Additional Comments,” in which they described themselves and their desired roommates in an open-ended essay. After a new subscriber completed the application, according to the lawsuit, the service assembled the answers in a profile page, which displayed the subscriber's pseudonym, his description, and his preferences.

A fair housing group sued the company, alleging that its business violated the FHA and California fair housing laws. The group argued that the Web site was effectively acting as a housing broker doing online what it may not do off-line. A lower court dismissed the case, ruling that the CDA shielded Roommate.com from liability under fair housing law.

The federal appeals court reversed in part, ruling that Roommate.com could be liable under fair housing law for some of the content on its Web site. The decision focuses solely on the Web site's claim of immunity under the CDA. Further proceedings were needed to determine whether its activities actually violated the FHA or state fair housing law.

The court explained that immunity under the CDA applied only when a Web site operator operated as a service provider, but not when it operated as a content provider. If it passively displayed content that was entirely created by third parties, it was only a service provider and was protected under the CDA. But as to content it created itself—or was responsible for creating or developing—the Web site was a content provider, and it would not be protected from liability under the CDA.

The court ruled that Roommate.com may be liable under fair housing law for the questions posed to potential subscribers during registration. The court said the company was a content provider by creating the questions and choices of answers, and by designing its Web site registration procedures around it. The company could claim no immunity for posting the questions on its Web site or for forcing subscribers to answer them as a condition for using its service, according to the court.

Furthermore, the court ruled, the company was not entitled to immunity for the operation of its search system, which filtered listings, or of its email notification system, which directed emails to subscribers, according to alleged discriminatory criteria. The court said the system was designed to steer users based on the preferences and personal characteristics that the company forced subscribers to disclose, so it may be liable for using the answers to limit who has access to housing.

However, the court ruled that Roommate.com was immune from liability under the CDA for the “Additional Comments” section. Even though some subscribers posted discriminatory statements, the court said, the Web site published those statements as written, and it was not responsible for the development of that content [Fair Housing Council of San Fernando Valley v. Roommate.com, LLC, April 2008].

This decision resolves only part of the case—whether the Web site was entitled to immunity under federal law. The case now heads back to the federal court in California to sort out the substance of the housing discrimination claims.

EDITOR'S NOTE: Despite ongoing litigation over the potential liability of online service providers for discriminatory advertising, the law remains clear: Communities that generate discriminatory ads—whether online or in traditional media—may be held liable for violating fair housing law.

• Americans with Disabilities Act: 42 USC §12101 et seq. (1990).

• Communications Decency Act: 47 USC §230 (1996).

• Fair Housing Act: 42 USC §3601 et seq.

• Rehabilitation Act: 29 USC §793 (1973).

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