Pfaff v. U.S. Dept. of Housing and Urban Development

Decision Date02 July 1996
Docket NumberNo. 94-70898,94-70898
Citation88 F.3d 739
Parties, 96 Cal. Daily Op. Serv. 4951, 96 Daily Journal D.A.R. 7988 Karl PFAFF; Elizabeth Pfaff, Petitioners, v. U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Respondent.
CourtU.S. Court of Appeals — Ninth Circuit

Catherine W. Smith, Edwards, Sieh, Hathaway, Smith & Goodfriend, Seattle, Washington, for petitioners.

Gregory B. Friel, United States Department of Justice, Washington, D.C., for respondent.

Petition to Review a Decision of the Department of Housing and Urban Development.

Before: HALL and TROTT, Circuit Judges, and RAFEEDIE, * District Judge.

OPINION

CYNTHIA HOLCOMB HALL, Circuit Judge:

The petitioners are private landlords who have asked us to review a decision of the Department of Housing and Urban Development ("HUD") finding them liable for "familial status" discrimination under the Fair Housing Act ("FHA"). The question presented is whether the petitioners' facially neutral, numerical occupancy restriction illegally discriminates against families with children. Declining to reach the merits of the prima facie case, we hold that the petitioners have successfully rebutted any prima facie case against them. Furthermore, we admonish HUD for its heavy-handed conduct in this case. We grant the petition.

I

This story begins in the spring of 1992 with an eviction notice and Beckie Nymoen's search for a new house in the Bellingham, Washington area. There were all the usual considerations to weigh: budget, location and adequate space for the family's three young children. She and her husband, Michael Nymoen, decided to aim for a three-bedroom rental in the range of $800 to $900 a month. She would look in an area called Sudden Valley which, they felt, would be both near to Michael Nymoen's work and hospitable to the children.

Beckie Nymoen contacted Bev Talley of Sun Mark Properties. Two houses listed with Sun Mark appeared to fit the Nymoen's specifications. One of these, located at 5 Basin View Court, Beckie Nymoen toured with her daughter and liked very much. The house rented for $850 a month. It had 1200 square feet, a living room, dining room, kitchen, deck, two bathrooms, an "undersized" garage, no basement and very little yard. By way of sleeping space, the house had a master bedroom, another 10' X 10' bedroom, and a "den" opening directly into the main living area, which could also have been used as a bedroom. The rest of the family saw the house from the outside and agreed that it would meet their needs. Beckie and Michael filled in the rental application and left a deposit of $105. They passed their creditworthiness screening with Sun Mark. Bev Talley then got in touch with the owners, Karl and Elizabeth Pfaff, who are the petitioners in this matter.

The Pfaffs are a retired couple in their 70s who live primarily on the rental income from eight single-family houses around Bellingham. They have been landlords for some time. In previous years, when they lived in Memphis, Tennessee, they bought run-down houses which they would renovate with their own labor and then rent. Today they own only new houses because they can no longer handle physical home improvement work. They bought the house at 5 Basin View Court in 1989, for use both as a rental and as a potential home for themselves. They expect that, because this house is smaller than their present residence in interior and yard space, it will be easier to maintain as they grow older.

The Pfaffs' business strategy has been to keep their rental units in very good condition, and rent them at slightly below-market rates, in order to encourage their tenants to remain in residence for long periods of time. In addition, the Pfaffs limit the number of occupants in each house. The occupancy limit varies with the size of the dwelling and its lot, the number of bedrooms, and the presence of various other amenities and characteristics (bathrooms, layout, traffic patterns inside the house, and so forth). They arrive at particular limits based on their experience in the business and "common sense." No state or local occupancy standards control, and the decision has always been theirs to make. In four of their larger Bellingham area properties the Pfaffs allow families of five. Unlike the house on Basin View Court, these properties have more than one living area, a finished basement, or both. The house on Basin View Court has always been let to families of four.

The Pfaffs have always rented to families with children: at the time of the administrative hearing, families with as many as three children lived in seven of their properties. The Pfaffs also rent to families of diverse configurations. In one of their units lives a family of two parents, two children, and a grandparent, who lives in the finished basement.

The Basin View Court listing was the Pfaffs' first experience with Sun Mark as a broker. When Bev Talley rang Karl Pfaff with news of the Nymoens as prospective tenants, and began to relate to him the Nymoens' many good points, he interrupted her once he heard that they were a family of five. He wished to rent to a family of four. Bev Talley protested. In a subsequent meeting between the Pfaffs and Sun Mark, Bev Talley told the Pfaffs that she believed their occupancy restriction ran afoul of the fair housing laws, but the Pfaffs were undeterred. They withdrew their listing with Sun Mark and later found a family of four to take the lease at the original price.

Very disappointed, the Nymoens sought other accommodation, as their deadline to move was approaching. They took a slightly larger three-bedroom house at 16 Lost Lake Court, located outside Sudden Valley, for $975 a month. This place had a finished basement which unhappily began flooding shortly after their arrival, and has been of little use to them since. Their move was fraught with inconvenience. The existing tenants wanted to wait until they closed on a house purchase, so the Nymoens obtained a delay of their departure date from their landlord. When this new deadline arrived, the Lost Lake Court tenants were not yet ready to move. In compromise, the tenants vacated the premises but left their furniture in the Nymoen's garage, which Michael Nymoen had intended to use for storing his tools. Also, the Nymoens were forced to move in a short span of time, and so they were forced to incur the expense of hiring a moving van. They would have avoided this expense had they rented the Pfaffs' house because they would have had an entire month to move their belongings piecemeal, using their own vehicle.

The Nymoens felt angry for having lost the Basin View Court house. They reported feeling unfairly judged on the basis of their family size. Beckie Nymoen described the experience as "degrading." On January 22, 1993, they filed an amended complaint with the Secretary of HUD, alleging violations of Title VIII of the Civil Rights Act of 1968, enacted as the Fair Housing Act, 42 U.S.C. § 3601, et seq., and amended by the Fair Housing Amendments Act of 1988, Pub.L. No. 100-430, 102 Stat. 1626 (1988) ("1988 Amendments"). The Secretary investigated and issued a Determination of Reasonable Cause and Charge of Discrimination on the grounds that the Pfaffs had discriminated against the Nymoens based on their "familial status." See FHA § 804(a), (b), codified at 42 U.S.C. § 3604(a), (c) (prohibiting family status discrimination). The cause was tried before an administrative law judge ("ALJ"), who on October 27, 1994 ruled in favor of the Secretary, on behalf of the Nymoens.

The ALJ found that HUD had established a prima facie case of discrimination by "disparate impact," and that the Pfaffs had failed to meet their burden of rebuttal. According to the ALJ, the prima facie case was established when the Nymoens, a family of five, were denied the opportunity to rent the Basin View Court house and a family of four was admitted in their place. HUD statistics demonstrated that households of five overwhelmingly comprise families with children in Whatcom County. To rebut this prima facie showing of disparate impact, the ALJ required that the Pfaffs demonstrate a "compelling business necessity" for their policy. Under this standard, which he described as "akin to constitutional strict scrutiny," the Pfaffs were first obliged to articulate a business necessity and second to show that their numerical restriction constituted the least restrictive means to that end.

The ALJ held that the Pfaffs had failed to produce evidence to support their subjective belief that a family of five would diminish the economic value of the premises any more than would a family of four. Furthermore, he found that the Pfaffs' proffered goal, to "maintain the economic value of the property," would have been adequately advanced by other measures, including "detailed maintenance requirements, more frequent inspections, higher security deposits, or more careful tenant screening." The ALJ found the Pfaffs in violation of 42 U.S.C. §§ 3604(a) (refusal to rent on a discriminatory basis) and (c) (making discriminatory statements in the course of business). He ordered damages, an injunction and a civil penalty.

The ALJ awarded $4,212.61 in compensatory damages and $20,000 in damages for emotional distress. The latter sum was meant to compensate for the Nymoens' feelings of embarrassment, humiliation and anger, and for the resultant strain on the family. Beckie Nymoen testified that in the wake of the incident her husband withdrew from contact with her and the children. (The couple subsequently separated, the ALJ noted). Finally, the ALJ pointed to Karl Pfaff's "blatant disregard" for the FHA's prohibition on family status discrimination. Comparing this case to a number of others, including HUD v. Blackwell, Fair Housing-Fair Lending (P-H) para. 25,001, aff'd, 908 F.2d 864 (11th Cir.1990) (awarding $40,000 to family denied opportunity...

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